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Universal portfolio algorithm

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The Universal portfolio algorithm is a portfolio selection algorithm from the field of machine learning and information theory. The algorithm learns adaptively from historical data and maximizes the log-optimal growth rate in the long run. It was firstly introduced by Thomas M. Cover.[1]

The algorithm rebalances the portfolio at the beginning of each trading period. At the beginning of the first trading period it starts with a naive diversification. In the following trading periods the portfolio composition depends on the historical total return of all possible constant-rebalanced portfolios.

References

  1. ^ Cover, Thomas M. (1991). "Universal Portfolios". Mathematical Finance. 1 (1): 1–29.
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