Lune

ICML2026Top-tier venue

Decision-focused Sparse Tangent Portfolio Optimization

Haeun Jeon, Seunghoon Choi, Hyunglip Bae, Yongjae Lee, Woo Chang Kim

2026Year

Abstract

Sparse tangent portfolio optimization aims to learn an interpretable, low-cardinality portfolio in the tangency direction of the mean-variance frontier. However, the associated cardinality-constrained formulation is NP-hard, and standard predict-then-optimize pipelines often misalign forecasting accuracy with downstream portfolio quality. We propose an end-to-end decision-focused learning framework that reformulates Sharpe ratio maximization as a Disciplined Parametrized Programming (DPP)-compliant convex programming layer and replaces discrete selection with a smooth top-kk operator enforcing an exact cardinality kk. This enables gradient flow through prediction, asset selection, and re-optimization, allowing the predictive model to directly optimize portfolio performance. Across four major equity markets, our method achieves competitive and often superior out-of-sample Sharpe ratios compared with historical and prediction-focused baselines, with particularly strong gains in larger asset universes. Our code is publicly available.

Ask about this paper

Your agent reads all of it.

Lune indexed this paper to the last equation, along with the top-tier papers that cite it. Ask a question and the answer quotes them.

Questions to start from

Your agent calls

Luneget_paper_fulltext

Ask in Lune

Free to start. No credit card required.

Builds on2

Related papers

Dusk over the sea between two cliffs drawn in fine vertical lines