Graduate Student / Postdoc Seminar
Multi-Period Portfolio Selection and Bayesian Dynamic Models
Speaker: Petter Kolm
Location: Warren Weaver Hall 1302
Date: Friday, December 2, 2016, 1 p.m.
We describe a novel approach to the study of multi-period portfolio selection problems with time varying alphas, trading costs, and constraints. We show that, to each multi-period portfolio optimization problem, one may associate a "dual" Bayesian dynamic model. The dual model is constructed so that the most likely sequence of hidden states is the trading path which optimizes expected utility of the portfolio. The existence of such a model has numerous implications, both theoretical and computational. Sophisticated computational tools developed for Bayesian state estimation can be brought to bear on the problem, and the intuitive theoretical structure attained by recasting the problem as a hidden state estimation problem allows for easy generalization to other problems in finance. Time permitting, we discuss several applications to this approach. This is joint work with Gordon Ritter. Slides of the talk are available upon request sent to Alexisz.