Numerical solution of the regularized portfolio selection problem

Abstract

We investigate the use of Bregman iteration method for the solution of the portfolio selection problem, both in the single and in the multi-period case. Our starting point is the classical Markowitz mean-variance model, properly extended to deal with the multi-period case. The constrained optimization problem at the core of the model is typically ill-conditioned, due to correlation between assets. We consider l1-regularization techniques to stabilize the solution process, since this has also relevant financial interpretations.