An Optimal Medium- to Long-Term Investment Strategy Using Kernel Method and Control Policy

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The present study utilized nonlinear control policies to dynamically rebalance the portfolio for medium- to long-term asset allocation. By using the kernel method which is a class of algorithm for nonlinear data analysis, the problem can be reduced to a convex quadratic optimization problem. Moreover, a dimensionality reduction technique based on eigenvalue decomposition was also developed to reduce the problem size. Numerical experiments were conducted to assess the investment performance of the strategy established by this study and the effectiveness of the dimensionality reduction technique.