Multi-objective Scatter Search with External Archive for Portfolio Optimization

Khin Lwin, Rong Qu, Jianhua Zheng

2013

Abstract

The relevant literature showed that many heuristic techniques have been investigated for constrained portfolio optimization problem but none of these studies presents multiobjective Scatter Search approach. In this work, we present a hybrid multiobjective population-based evolutionary algorithm based on Scatter Search with an external archive to solve the constrained portfolio selection problem. We considered the extended mean-variance portfolio model with three practical constraints which limit the number of assets in a portfolio, restrict the proportions of assets held in the portfolio and pre-assign some specific assets in the portfolio. The proposed hybrid metaheuristic algorithm follows the basic structure of the Scatter Search and defines the reference set solutions based on Pareto dominance and crowding distance. New Subset generation and combination methods are proposed to generate efficient and diversified portfolios. Hill Climbing operation is integrated to search for improved portfolios. The performance of the proposed multiobjective Scatter Search algorithm is compared with Non-dominated Sorting Genetic Algorithm (NSGA-II). Experimental results indicate that the proposed algorithm is a promising approach for solving the constrained portfolio selection problem. Measurements by the performance metrics indicate that it outperforms NSGA-II on the solution quality within a shorter computational time.

Paper Citation

in Harvard Style

Lwin K., Qu R. and Zheng J. (2013). Multi-objective Scatter Search with External Archive for Portfolio Optimization . In Proceedings of the 5th International Joint Conference on Computational Intelligence - Volume 1: ECTA, (IJCCI 2013) ISBN 978-989-8565-77-8, pages 111-119. DOI: 10.5220/0004552501110119

in Bibtex Style

@conference{ecta13,
author={Khin Lwin and Rong Qu and Jianhua Zheng},
title={Multi-objective Scatter Search with External Archive for Portfolio Optimization},
booktitle={Proceedings of the 5th International Joint Conference on Computational Intelligence - Volume 1: ECTA, (IJCCI 2013)},
year={2013},
pages={111-119},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0004552501110119},
isbn={978-989-8565-77-8},
}

in EndNote Style

TY - CONF
JO - Proceedings of the 5th International Joint Conference on Computational Intelligence - Volume 1: ECTA, (IJCCI 2013)
TI - Multi-objective Scatter Search with External Archive for Portfolio Optimization
SN - 978-989-8565-77-8
AU - Lwin K.
AU - Qu R.
AU - Zheng J.
PY - 2013
SP - 111
EP - 119
DO - 10.5220/0004552501110119