Metaheuristic Optimization of Constrained Large Portfolios using Hybrid Particle Swarm Optimization

G. A. Vijayalakshmi Pai and Thierry Michel
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G. A. Vijayalakshmi Pai: Department of Computer Applications, PSG College of Technology, Coimbatore, India
Thierry Michel: Tactical Asset Allocation and Overlay, Lombard Odier Asset Management (Europe) Limited, Paris, France

International Journal of Applied Metaheuristic Computing (IJAMC), 2017, vol. 8, issue 1, 1-23

Abstract: Classical Particle Swarm Optimization (PSO) that has been attempted for the solution of complex constrained portfolio optimization problem in finance, despite its noteworthy track record, suffers from the perils of getting trapped in local optima yielding inferior solutions and unrealistic time estimates for diversification even in medium level portfolio sets. In this work the authors present the solution of the problem using a hybrid PSO strategy. The global best particle position arrived at by the hybrid PSO now acts as the initial point to the Sequential Quadratic Programming (SQP) algorithm which efficiently obtains the optimal solution for even large portfolio sets. The experimental results of the hybrid PSO-SQP model have been demonstrated over Bombay Stock Exchange, India (BSE200 index, Period: July 2001-July 2006) and Tokyo Stock Exchange, Japan (Nikkei225 index, Period: March 2002-March 2007) data sets, and compared with those obtained by Evolutionary Strategy, which belongs to a different genre.

Date: 2017
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