Applications of Genetic Algorithm to Portfolio Optimization with Practical Transaction Constraints
Chieh-Yow ChiangLin 0
0Department of Finance, National KUAS
Available Online October 2006.
- https://doi.org/10.2991/jcis.2006.273How to use a DOI?
- portfolio, mean-variance model, genetic algorithms
- The portfolio optimization model, initially proposed by Markowitz in 1952 and known as mean-variance model (MV model), is applied to find the optimized allocation among assets to get higher investment return and lower investment risk. However, the MV model did not consider some practical limitations of financial market, including: (1) transaction cost and (2) minimal transaction lots. While these constraints are not considered in the model, the practicability of the model will be restrained. But when they are included in the model, the model will become an NP hard problem, which cannot obtain global optimal solution by traditional mathematics programming techniques. In this research, besides proposing various models to include afore-mentioned consideration in the MV model, genetic algorithms are applied to solve these models. Empirical tests in the Taiwan stock market are provided to prove the applicability of the techniques.
- Open Access
- This is an open access article distributed under the CC BY-NC license.
Cite this article
TY - CONF AU - Chieh-Yow ChiangLin PY - 2006/10 DA - 2006/10 TI - Applications of Genetic Algorithm to Portfolio Optimization with Practical Transaction Constraints BT - 9th Joint International Conference on Information Sciences (JCIS-06) PB - Atlantis Press SN - 1951-6851 UR - https://doi.org/10.2991/jcis.2006.273 DO - https://doi.org/10.2991/jcis.2006.273 ID - ChiangLin2006/10 ER -