Portfolio Optimization Based on Robust Probablistic Planning Model Using Genetic Algorithm and Shuffled Frog-leaping Algorithm

Subject Areas : Financial engineering

MohammadSaeed Heidari ¹ ( Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabatabai University, Tehran, Iran. )
Javad Validi ² ( Department of Financial Engineering, Faculty of Industrial Engineering, K.N.Toosi University of Technology, Tehran, Iran )
Seyed Babak Ebrahimi ³ ( Department of Financial Engineering, Faculty of Industrial Engineering, K.N.Toosi University of Technology, Tehran, Iran )

Received: 2020-11-13 Accepted : 2020-12-18 Published : 2021-06-22

Keywords: Genetic Algorithm, Portfolio optimization, Taguchi Method, Shuffled Frog-Leaping Algorithm,

Abstract :

Portfolio selection problem which is one of the most important issues in finance, using a model that considers conditions of the real world is important. In financial markets, severe and frequent fluctuations cause frequent changes in the portfolio selection models outputs, which increases the number of times to change the weight of portfolio's assets, and so that incurs high management and transaction costs. In the literature of portfolio selection models, one of the approaches to prevent this kind of high costs is robust optimization approach. In this study, in order to optimize the portfolio, genetic algorithm and shuffled frog-leaping algorithm are used to solve robust probablistic planning model presented by Amiri and Heidari (1399) in higher dimensions. To this end, 15 specific problems with different dimensions (number of companies and time periods) are designed and processed. The results of the implementation of two algorithms on the above 15 problems were compared using T-test, which shows no significant difference between two algorithms in portfolio selection problem, but the combined approach of TOPSIS and entropy weighting selects the genetic algorithm as superior algorithm.