Portfolio Selection with Irregular Time Grids: an example using an ICA-COGARCH(1, 1) approach

In this paper we consider a portfolio selection problem defined for irregularly spaced observations. We use the Independent Component Analysis for the identification of the dependence structure and continuous-time GARCH models for the marginals. We discuss both estimation and simulation of market pr...

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Bibliographic Details
Published in:Financial markets and portfolio management 2022-03, Vol.36 (1), p.57-85
Main Authors: Bianchi, Francesco, Mercuri, Lorenzo, Rroji, Edit
Format: Article
Language:English
Subjects:
Business and Management
Finance
Management
Price quotations
Stochastic models
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Summary:In this paper we consider a portfolio selection problem defined for irregularly spaced observations. We use the Independent Component Analysis for the identification of the dependence structure and continuous-time GARCH models for the marginals. We discuss both estimation and simulation of market prices in a context where the time grid of price quotations differs across assets. We present an empirical analysis of the proposed approach using two high-frequency datasets that provides better out-of-sample results than competing portfolio strategies except for the case of severe market conditions with frequent rebalancements.
ISSN:1934-4554
2373-8529
DOI:10.1007/s11408-021-00387-3