Working Papers

Quantitative Finance




A new investment method with AutoEncoder: Applications to crypto currencies (published in “Expert Systems with Applications”)

Author:Masafumi Nakano, Akihiko Takahashi


This paper proposes a novel approach to the portfolio management using an AutoEncoder. In particular, features learned by an AutoEncoder with ReLU are directly exploited to portfolio constructions. Since the AutoEncoder extracts characteristics of data through a non-linear activation function ReLU, its realization is generally difficult due to the non-linear transformation procedure. In the current paper, we solve this problem by taking full advantage of the similarity of ReLU and an option payoff. Especially, this paper shows that the features are successfully replicated by applying so-called dynamic delta hedging strategy. An out of sample simulation with crypto currency dataset shows the effectiveness of our proposed strategy.

subsequently published in “Expert Systems with Applications”,
Volume 162, 30 December 2020, 113730
(available until September 27, 2020)