Journal of Signal Processing
Online ISSN : 1880-1013
Print ISSN : 1342-6230
ISSN-L : 1342-6230
Principal Component Analysis for the Nonlinear Portfolio Model
Kai MorimotoMasahiro SaitoSatoshi InoseAtsushi KannariTomoya Suzuki
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2014 Volume 18 Issue 4 Pages 177-180

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Abstract

The present study improves the nonlinear portfolio model by using principal component analysis. To enhance the portfolio effect of spreading risks efficiently, we aim for lower correlations among each asset movement. For this reason, we apply the principal components of assets to the nonlinear portfolio model, which uses nonlinear prediction to estimate future movements. However, because we are not sure whether these principal components have nonlinearity, we perform Fourier-shuffled surrogate tests on the principal components. Finally, we confirm the efficiency of our nonlinear principal-component portfolio model through some investment simulations with real financial data.

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© 2014 Research Institute of Signal Processing, Japan
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