In this paper, we study the problem of finding sparse, mean reverting portfolios in multivariate time series. This can be applied to developing profitable convergence trading strategies by identifying portfolios which can be traded advantageously when their prices differ from their identified...

We study the problem of finding sparse, mean reverting portfolios based on multivariate historical time series. After mapping the optimal portfolio selection problem into a generalized eigenvalue problem, we propose a new optimization approach based on the use of simulated annealing. This new...