Particle swarm optimization approach to portfolio optimization


Cura T.

NONLINEAR ANALYSIS-REAL WORLD APPLICATIONS, vol.10, no.4, pp.2396-2406, 2009 (Journal Indexed in SCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 10 Issue: 4
  • Publication Date: 2009
  • Doi Number: 10.1016/j.nonrwa.2008.04.023
  • Title of Journal : NONLINEAR ANALYSIS-REAL WORLD APPLICATIONS
  • Page Numbers: pp.2396-2406

Abstract

The survey of the relevant literature showed that there have been many studies for portfolio optimization problem and that the number of studies which have investigated the optimum portfolio using heuristic techniques is quite high. But almost none of these studies deals with particle swarm optimization (PSO) approach. This study presents a heuristic approach to portfolio optimization problem using PSO technique. The test data set is the weekly prices from March 1992 to September 1997 from the following indices: Hang Seng in Hong Kong, DAX 100 in Germany, FTSE 100 in UK, S&P 100 in USA and Nikkei in Japan. This study uses the cardinality constrained mean-variance model. Thus, the portfolio optimization model is a mixed quadratic and integer programming problem for which efficient algorithms do not exist. The results of this study are compared with those of the genetic algorithms, simulated annealing and tabu search approaches. The purpose of this paper is to apply PSO technique to the portfolio optimization problem. The results show that particle swarm optimization approach is successful in portfolio optimization. (c) 2008 Elsevier Ltd. All rights reserved.