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Anatomy of a portfolio optimizer under a limited budget constraint

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Abstract

Predicting the market’s behavior to profit from trading stocks is far from trivial. Such a task becomes even harder when investors do not have large amounts of money available, and thus cannot influence this complex system in any way. Machine learning paradigms have been already applied to financial forecasting, but usually with no restrictions on the size of the investor’s budget. In this paper, we analyze an evolutionary portfolio optimizer for the management of limited budgets, dissecting each part of the framework, discussing in detail the issues and the motivations that led to the final choices. Expected returns are modeled resorting to artificial neural networks trained on past market data, and the portfolio composition is chosen by approximating the solution to a multi-objective constrained problem. An investment simulator is eventually used to measure the portfolio performance. The proposed approach is tested on real-world data from New York’s, Milan’s and Paris’ stock exchanges, exploiting data from June 2011 to May 2014 to train the framework, and data from June 2014 to July 2015 to validate it. Experimental results demonstrate that the presented tool is able to obtain a more than satisfying profit for the considered time frame.

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Notes

  1. Saturation of the neuron is a non linearity happens when the weights are too high in magnitude: on every input the result will be the saturation level and that means that the neuron losses memory and became useless.

  2. http://www.eni.com/.

  3. Milan stock exchange (Euro): A2A.MI, ATL.MI, AZM.MI, BMED.MI, BMPS.MI, BP.MI, BPE.MI, BZU.MI, CPR.MI, EGPW.MI, ENEL.MI, ENI.MI, EXO.MI, FCA.MI, FNC.MI, G.MI, ISP.MI, IT.MI, LUX.MI, MB.MI, MS.MI, PMI.MI, PRY.MI, SPM.MI, SRG.MI, STM.MI, TEN.MI, TIT.MI, TOD.MI, TRN.MI, UBI.MI, UCG.MI, US.MI, YNAP.MI.

  4. Paris Stock Exchange (Euro): AC.PA, ACA.PA, AI.PA, AIR.PA, BN.PA, BNP.PA, CA.PA, CAP.PA, CS.PA, DG.PA, EI.PA, EN.PA, ENGI.PA, FP.PA, GLE.PA, KER.PA, LI.PA, LR.PA, MC.PA, ML.PA, OR.PA, ORA.PA, PUB.PA, RI.PA, RNO.PA, SAF.PA, SAN.PA, SGO.PA, SU.PA, TEC.PA, UG.PA, VIE.PA, VIV.PA.

  5. Down Jones Avarage Industrial—New York Stock Exchange (US Dollar): AAPL, AXP, BA, CAT, CSCO, CVX, DD, DIS, GE, GS, HD, IBM, INTC, JNJ, JPM, KO, MCD, MMM, MRK, MSFT, NKE, PFE, PG, TRV, UNH, UTX, V, VZ, WMT, XOM.

  6. https://finance.yahoo.com/.

  7. http://www.bloomberg.com/markets/stocks.

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Authors and Affiliations

  1. Liverpool John Moores University, Byrom Street, L3 3AF, Liverpool, United Kingdom

    Igor Deplano

  2. Politecnico di Torino, Corso Duca degli Abruzzi 24, 10129, Torino, Italy

    Giovanni Squillero

  3. UMR GMPA, AgroParisTech, INRA, Université Paris-Saclay, 1 av. Brétignières, 78850, Thiverval-Grignon, France

    Alberto Tonda

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  1. Igor Deplano
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  2. Giovanni Squillero
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  3. Alberto Tonda
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Correspondence to Igor Deplano.

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Deplano, I., Squillero, G. & Tonda, A. Anatomy of a portfolio optimizer under a limited budget constraint. Evol. Intel. 9, 125–136 (2016). https://doi.org/10.1007/s12065-016-0144-3

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