Deep Learning Models for Risk-Aware Asset Allocation:  A Theoretical and Empirical Study

Jiayi Cao; Zhaofei Wang; Cong Lin

doi:10.54097/qnjxbm60

Authors

Jiayi Cao
Zhaofei Wang
Cong Lin

DOI:

https://doi.org/10.54097/qnjxbm60

Keywords:

Deep Learning, Asset Allocation, Risk Management, Portfolio Optimization, Financial Modeling, Empirical Analysis, Investment Strategies.

Abstract

The integration of deep learning into asset allocation strategies has the potential to revolutionize the financial industry by enhancing risk management and optimizing investment portfolios. This paper presents a novel approach to risk-aware asset allocation by employing deep learning models that are theoretically grounded and empirically validated. The study begins with a comprehensive literature review, examining the evolution of portfolio theory, the critical role of risk management, and the burgeoning application of deep learning in finance. We construct a theoretical framework that combines risk management principles with a deep learning model, detailing the model's parameters and assumptions. The mathematical derivation of the model is provided, elucidating the optimization algorithms and risk-adjusted metrics. An empirical analysis follows, demonstrating the model's performance through rigorous testing and validation against historical market data. The effectiveness of the proposed risk management strategies is visually represented, offering a clear and compelling illustration of the model's capabilities. The paper concludes with a summary of the findings, contributions to the field, and directions for future research. This study contributes to the literature by providing a robust, data-driven approach to asset allocation that prioritizes risk management and leverages the predictive power of deep learning.

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