Certified High-Dimensional Wasserstein Robust Portfolio Optimization
TL;DR
A certified, scalable approximation for high-dimensional Wasserstein distributionally robust portfolio optimization is developed, obtaining a finite hyperplane--dual formulation over compact polyhedral supports under the one-norm ground metric and polyhedral portfolio constraints.
Abstract
We develop a certified, scalable approximation for high-dimensional Wasserstein distributionally robust portfolio optimization. For expected-utility maximization under order-one Wasserstein ambiguity, standard duality yields a semi-infinite convex program. For long-only portfolios with box support under the one-norm ground metric, an exact sample-specific vertex reformulation provides an exponential-size computational benchmark. We then majorize the utility by supporting hyperplanes and dualize the support subproblems, obtaining a finite hyperplane--dual formulation over compact polyhedral supports. Under the one-norm ground metric and polyhedral portfolio constraints, this formulation is a polynomial-size linear program. The uniform utility-approximation error bounds both the robust-value error and the near-optimality gap for the original robust problem. Experiments validate the certified approximation and demonstrate monthly 476-asset rebalancing and computational scalability to 1,000 assets.