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Evolutionary Optimization for Multiobjective Portfolio Selection under Markowitz’s Model with Application to the Caracas Stock Exchange

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Nature-Inspired Algorithms for Optimisation

Part of the book series: Studies in Computational Intelligence ((SCI,volume 193))

Abstract

Several problems in the area of financial optimization can be naturally dealt with optimization techniques under multiobjective approaches, followed by a decision-making procedure on the resulting efficient solutions. The problem of portfolio optimization is one of them. This chapter studies the use of evolutionary multiobjective techniques to solve such problems, focusing on Venezuelan market mutual funds between years 1994 and 2002. We perform a comparison of different evolutionary multiobjective approaches, namely NSGA-II, SPEA2, and IBEA, and show how these algorithms provide different optimization profiles. The subsequent step of solution selection is done using Sharpe’s index as a measure of risk premium. We firstly show that NSGA-II provides similar results to SPEA2 on mixed and fixed funds, and better (according to Sharpe’s index) solutions than SPEA2 on variable funds, indicating that NSGA-II provides a better coverage of the region containing interesting solutions for Sharpe’s index. Furthermore, IBEA outperforms both NSGA-II and SPEA2 in terms of index value attained. Finally, we also show that this procedure results in a more profitable solution than an indexed portfolio by the Caracas Stock Exchange.

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Author information

Authors and Affiliations

  1. Laboratorio de Computación de Alto Rendimiento (LCAR), Universidad Nacional Experimental del Táchira (UNET), San Cristóbal, Venezuela

    Feijoo Colomine Duran

  2. Dept. Lenguajes y Ciencias de la Computación, ETSI Informática, University of Málaga, Campus de Teatinos, 29071, Málaga, Spain

    Carlos Cotta & Antonio J. Fernández

Authors
  1. Feijoo Colomine Duran
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  2. Carlos Cotta
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  3. Antonio J. Fernández
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Editors and Affiliations

  1. Swinburne University of Technology, Sarawak Campus, Jalan Simpang Tiga, 93350, Kuching, Sarawak, Malaysia

    Raymond Chiong

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Duran, F.C., Cotta, C., Fernández, A.J. (2009). Evolutionary Optimization for Multiobjective Portfolio Selection under Markowitz’s Model with Application to the Caracas Stock Exchange. In: Chiong, R. (eds) Nature-Inspired Algorithms for Optimisation. Studies in Computational Intelligence, vol 193. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-00267-0_18

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  • DOI: https://doi.org/10.1007/978-3-642-00267-0_18

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