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arXiv · 2503.17737

Bayesian Optimization for CVaR-based portfolio optimization

Robert Millar·Jinglai Li
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Abstract

Optimal portfolio allocation is often formulated as a constrained risk problem, where one aims to minimize a risk measure subject to some performance constraints. This paper presents new Bayesian Optimization algorithms for such constrained minimization problems, seeking to minimize the conditional value-at-risk (a computationally intensive risk measure) under a minimum expected return constraint. The proposed algorithms utilize a new acquisition function, which drives sampling towards the optimal region. Additionally, a new two-stage procedure is developed, which significantly reduces the number of evaluations of the expensive-to-evaluate objective function. The proposed algorithm's competitive performance is demonstrated through practical examples.

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Robert Millar, Jinglai Li. 2025-03-22. Bayesian Optimization for CVaR-based portfolio optimization. https://arxiv.org/abs/2503.17737

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