Back to Search
Start Over
Implementation of particle swarm optimization in construction of optimal risky portfolios
- Source :
- 2007 IEEE International Conference on Industrial Engineering and Engineering Management.
- Publication Year :
- 2007
- Publisher :
- IEEE, 2007.
-
Abstract
- Since Markowitz's substantial work, the mean-variance model has revolutionized the way people think about portfolio of assets. According to the modern portfolio theory, the fundamental principle of financial investments is a diversification where investors diversify their investments into different types of assets. Constructing an optimal risky portfolio is a high-dimensional constrained optimization problem where financial investors look for an optimal combination of their investments among different financial assets with the aim of achieving a maximum reward-to-variability ratio. Among the various methodologies suggested, the most popular one is based on maximizing the well-known Sharpe ratio. In this study, we apply particle swarm optimization (PSO) for constructing optimal risky portfolios based on Sharpe ratio for financial investments. A particle swarm solver is developed and tested on a risky investment portfolio. The method is applied to a sample of stocks in Tehran Stock Exchange. Experimental results reveal that the proposed PSO algorithm provides a very feasible and useful tool to assist the investors in planning their investment strategy and constructing their portfolio.
Details
- Database :
- OpenAIRE
- Journal :
- 2007 IEEE International Conference on Industrial Engineering and Engineering Management
- Accession number :
- edsair.doi...........9ae66a6957d027a170eb2e07d3aa84d5