Portfolio optimization is an important aspect of decision-support in investment management. Realistic portfolio optimization, in contrast to simplistic mean- variance optimization, is a challenging problem, because it requires to determine a setof optimal solutions with respect to multiple objectives, where the objective functions are often multimodal and non-smooth. Moreover, the objectives are subject to various constraints of which many are typically non-linear and discontinuous. Conventional optimization methods, such as quadratic programming, cannot cope with these realistic problem properties. A valuable alternative are stochastic search heuristics, such as simulated annealing or evolutionary algorithms. We propose a new multiobjective evolutionary algorithm for portfolio optimization, which we call DEMPO - Differential Evolution for Multiobjective Portfolio Optimization. In our experimentation, we compare DEMPO with quadratic programming and another well-known evolutionary algorithm for multiobjective optimization called NSGA-II. The main advantage of DEMPO is its ability to tackle a portfolio optimization task without simplications, while obtaining very satisfying results in reasonable runtime.
Multiobjective Optimization using Differential Evolution for Real-World Portfolio Optimization / T., Krink; Paterlini, Sandra. - In: COMPUTATIONAL MANAGEMENT SCIENCE. - ISSN 1619-697X. - STAMPA. - 8:1-2(2011), pp. 157-179. [10.1007/s10287-009-0107-6]
Multiobjective Optimization using Differential Evolution for Real-World Portfolio Optimization
PATERLINI, Sandra
2011
Abstract
Portfolio optimization is an important aspect of decision-support in investment management. Realistic portfolio optimization, in contrast to simplistic mean- variance optimization, is a challenging problem, because it requires to determine a setof optimal solutions with respect to multiple objectives, where the objective functions are often multimodal and non-smooth. Moreover, the objectives are subject to various constraints of which many are typically non-linear and discontinuous. Conventional optimization methods, such as quadratic programming, cannot cope with these realistic problem properties. A valuable alternative are stochastic search heuristics, such as simulated annealing or evolutionary algorithms. We propose a new multiobjective evolutionary algorithm for portfolio optimization, which we call DEMPO - Differential Evolution for Multiobjective Portfolio Optimization. In our experimentation, we compare DEMPO with quadratic programming and another well-known evolutionary algorithm for multiobjective optimization called NSGA-II. The main advantage of DEMPO is its ability to tackle a portfolio optimization task without simplications, while obtaining very satisfying results in reasonable runtime.Pubblicazioni consigliate
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