Multi-period portfolio optimization: A parallel NSGA-III algorithm with real-world constraints

Yihe Qian and Jinpeng Wang

Finance Research Letters, 2024, vol. 60, issue C

Abstract: This study introduces an enhanced algorithm that integrates the parallel processing capabilities of PGAs with the multi-objective optimization strengths of NSGA-III, designed for multi-period optimization. We extend optimization objectives to T + 1 by minimizing risk over T periods and maximizing the terminal return, with a practical constraint on portfolio loss. It consistently outperforms the standard NSGA-III algorithm in both risk reduction and return optimization, especially when portfolios are adjusted quarterly. We also pinpoint optimal algorithmic parameters: a population size of 70 and 10 % migration rate. Overall, our research offers invaluable insights into real-world investment scenarios, serving both academic and industry interests.

Keywords: Genetic algorithm; Portfolio optimization; Risk management (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012400

DOI: 10.1016/j.frl.2023.104868

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