Time-Varying Mean-Variance Portfolio Selection under Transaction Costs and Cardinality Constraint Problem via Beetle Antennae Search Algorithm (BAS)

Vasilios N. Katsikis (), Spyridon D. Mourtas (), Predrag S. Stanimirović (), Shuai Li () and Xinwei Cao ()
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Vasilios N. Katsikis: National and Kapodistrian University of Athens
Spyridon D. Mourtas: National and Kapodistrian University of Athens
Predrag S. Stanimirović: University of Niš
Shuai Li: Swansea University
Xinwei Cao: Shanghai University

SN Operations Research Forum, 2021, vol. 2, issue 2, 1-26

Abstract: Abstract The Markowitz mean-variance portfolio selection is widely acclaimed as a very important investment strategy. A popular option to solve the static mean-variance portfolio selection (MVPS) problem is based on the use of quadratic programming (QP) methods. On the other hand, the static portfolio selection under transaction costs (PSTC) problem is usually approached with nonlinear programming (NLP) methods. In this article, we define and study the time-varying mean-variance portfolio selection under transaction costs and cardinality constraint (TV-MVPSTC-CC) problem as a time-varying nonlinear programming (TVNLP) problem. The TV-MVPSTC-CC also comprises the properties of a moving average. These properties make the TV-MVPSTC-CC an even greater analysis tool suitable to evaluate investments and identify trading opportunities across a continuous-time period. Using the Beetle Antennae Search (BAS) algorithm, we also provide an online solution to the static NLP problem. To the best of our knowledge, this is an innovative approach that incorporates modern meta-heuristic optimization techniques to provide an online, thus more realistic, solution to the TV-MVPSTC-CC problem. In this way, we present an online solution to a time-varying financial problem while eliminating the restrictions of static methods. Our approach is also verified by numerical experiments and computer simulations as an excellent alternative to traditional approaches.

Keywords: Mean-variance portfolio selection; Transaction costs; Cardinality constraint; Time-varying nonlinear programming (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s43069-021-00060-5

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