Applications of synthetic financial data in portfolio and risk modeling

Synthetic financial data offers a practical way to address the privacy and accessibility challenges that limit research in quantitative finance. This paper examines the use of generative models, in particular TimeGAN and Variational Autoencoders (VAEs), for creating synthetic return series that support portfolio construction, trading analysis, and risk modeling. Using historical daily returns from the S and P 500 as a benchmark, we generate synthetic datasets under comparable market conditions and evaluate them using statistical similarity metrics, temporal structure tests, and downstream financial tasks. The study shows that TimeGAN produces synthetic data with distributional shapes, volatility patterns, and autocorrelation behaviour that are close to those observed in real returns. When applied to mean-variance portfolio optimization, the resulting synthetic datasets lead to portfolio weights, Sharpe ratios, and risk levels that remain close to those obtained from real data. The VAE provides more stable training but tends to smooth extreme market movements, which affects risk estimation. Finally, the analysis supports the use of synthetic datasets as substitutes for real financial data in portfolio analysis and risk simulation, particularly when models are able to capture temporal dynamics. Synthetic data therefore provides a privacy-preserving, cost-effective, and reproducible tool for financial experimentation and model development.

Synthetic Financial Data Generation for Enhanced Financial Modelling

Data scarcity and confidentiality in finance often impede model development and robust testing. This paper presents a unified multi-criteria evaluation framework for synthetic financial data and applies it to three representative generative paradigms: the statistical ARIMA-GARCH baseline, Variational Autoencoders (VAEs), and Time-series Generative Adversarial Networks (TimeGAN). Using historical S and P 500 daily data, we evaluate fidelity (Maximum Mean Discrepancy, MMD), temporal structure (autocorrelation and volatility clustering), and practical utility in downstream tasks, specifically mean-variance portfolio optimization and volatility forecasting. Empirical results indicate that ARIMA-GARCH captures linear trends and conditional volatility but fails to reproduce nonlinear dynamics; VAEs produce smooth trajectories that underestimate extreme events; and TimeGAN achieves the best trade-off between realism and temporal coherence (e.g., TimeGAN attained the lowest MMD: 1.84e-3, average over 5 seeds). Finally, we articulate practical guidelines for selecting generative models according to application needs and computational constraints. Our unified evaluation protocol and reproducible codebase aim to standardize benchmarking in synthetic financial data research.