An Artificial Bee Colony Algorithm for Uncertain Portfolio Selection

Portfolio selection is an important issue for researchers and practitioners. In this paper, under the assumption that security returns are given by experts’ evaluations rather than historical data, we discuss the portfolio adjusting problem which takes transaction costs and diversification degree of portfolio into consideration. Uncertain variables are employed to describe the security returns. In the proposed mean-variance-entropy model, the uncertain mean value of the return is used to measure investment return, the uncertain variance of the return is used to measure investment risk, and the entropy is used to measure diversification degree of portfolio. In order to solve the proposed model, a modified artificial bee colony (ABC) algorithm is designed. Finally, a numerical example is given to illustrate the modelling idea and the effectiveness of the proposed algorithm

Optimal placement of distributed energy storage systems in distribution networks using artificial bee colony algorithm

The deployment of utility-scale energy storage systems (ESSs) can be a significant avenue for improving the performance of distribution networks. An optimally placed ESS can reduce power losses and line loading, mitigate peak network demand, improve voltage profile, and in some cases contribute to the network fault level diagnosis. This paper proposes a strategy for optimal placement of distributed ESSs in distribution networks to minimize voltage deviation, line loading, and power losses. The optimal placement of distributed ESSs is investigated in a medium voltage IEEE-33 bus distribution system, which is influenced by a high penetration of renewable (solar and wind) distributed generation, for two scenarios: (1) with a uniform ESS size and (2) with non-uniform ESS sizes. System models for the proposed implementations are developed, analyzed, and tested using DIgSILENT PowerFactory. The artificial bee colony optimization approach is employed to optimize the objective function parameters through a Python script automating simulation events in PowerFactory. The optimization results, obtained from the artificial bee colony approach, are also compared with the use of a particle swarm optimization algorithm. The simulation results suggest that the proposed ESS placement approach can successfully achieve the objectives of voltage profile improvement, line loading minimization, and power loss reduction, and thereby significantly improve distribution network performance

Extending generalised Leland option pricing models: simulation using Monte Carlo

To explain option pricing movements, most studies modify the Black-Scholes model by adding other factors. The parametric generalisation, on the other hand, frequently leads to an over-parametrisation problem in the model being constructed. The model's high constraints frequently resulted in considerable underpricing of the option. The nonparametric generalisation of the Black-Scholes-Merton (BSM) model, on the other hand, is prone to both discretisation and truncation issues in pricing options. Thus, this study extends the existing option pricing models by developing Extended Generalised Leland (EGL) models based on the implied adjusted volatility introduced in Leland models. The integrated framework ensures a model-free modelling while conforming to the conventional parametric option pricing. The proposed semiparametric models are developed to incorporate the transaction costs rate factor in the intermediated model-free framework to assure realistic pricing of options. The main focus of this study is to document by simulation that the EGL models deliver option pricing outperformance compared to the benchmark model. The simulation of the EGL models is conducted to investigate whether the proposed models are practical to be applied in a real financial system. Superior option pricing accuracy was observed in the EGL models based on the simulation results. This finding is grounded on the RMSE values as well on pairwise percentage difference values

Machine learning in stock indices trading and pairs trading

This thesis focuses on two fields of machine learning in quantitative trading. The first field uses machine learning to forecast financial time series (Chapters 2 and 3), and then builds a simple trading strategy based on the forecast results. The second (Chapter 4) applies machine learning to optimize decision-making for pairs trading. In Chapter 2, a hybrid Support Vector Machine (SVM) model is proposed and applied to the task of forecasting the daily returns of five popular stock indices in the world, including the S&P500, NKY, CAC, FTSE100 and DAX. The trading application covers the 1997 Asian financial crisis and 2007-2008 global financial crisis. The originality of this work is that the Binary Gravity Search Algorithm (BGSA) is utilized, in order to optimize the parameters and inputs of SVM. The results show that the forecasts made by this model are significantly better than the Random Walk (RW), SVM, best predictors and Buy-and-Hold. The average accuracy of BGSA-SVM for five stock indices is 52.6%-53.1%. The performance of the BGSA-SVM model is not affected by the market crisis, which shows the robustness of this model. In general, this study proves that a profitable trading strategy based on BGSA-SVM prediction can be realized in a real stock market. Chapter 3 focuses on the application of Artificial Neural Networks (ANNs) in forecasting stock indices. It applies the Multi-layer Perceptron (MLP), Convolution Neural Network (CNN) and Long Short-Term Memory (LSTM) neural network to the task of forecasting and trading FTSE100 and INDU indices. The forecasting accuracy and trading performances of MLP, CNN and LSTM are compared under the binary classifications architecture and eight classifications architecture. Then, Chapter 3 combines the forecasts of three ANNs (MLP, CNN and LSTM) by Simple Average, Granger-Ramanathan’s Regression Approach (GRR) and the Least Absolute Shrinkage and Selection Operator (LASSO). Finally, this chapter uses different leverage ratios in trading according to the different daily forecasting probability to improve the trading performance. In Chapter 3, the statistical and trading performances are estimated throughout the period 2000-2018. LSTM slightly outperforms MLP and CNN in terms of average accuracy and average annualized returns. The combination methods do not present improved empirical evidence. Trading using different leverage ratios improves the annualized average return, while the volatility increases. Chapter 4 uses five pairs trading strategies to conduct in-sample training and backtesting on 35 commodities in the major commodity markets from 1980 to 2018. The Distance Method (DIM) and the Co-integration Approach (CA) are used for pairs formation. The Simple Thresholds (ST) strategy, Genetic Algorithm (GA) and Deep Reinforcement Learning (DRL) are employed to determine trading actions. Traditional DIM-ST, CA-ST and CA-DIM-ST are used as benchmark models. The GA is used to optimize the trading thresholds in ST strategy, which is called the CA-GA-ST strategy. Chapter 4 proposes a novel DRL structure for determining trading actions, which replaces the ST decision method. This novel DRL structure is then combined with CA and called the CA-DRL trading strategy. The average annualized returns of the traditional DIM-ST, CA-ST and CA-DIM-ST methods are close to zero. CA-GA-ST uses GA to optimize searches for thresholds. GA selects a smaller range of thresholds, which improves the in-sample performance. However, the average out-of-sample performance only improves slightly, with an average annual return of 1.84% but an increased risk. CA-DRL strategy uses CA to select pairs and then employs DRL to trade the pairs, providing a satisfactory trading performance: the average annualized return reaches 12.49%; the Sharpe Ratio reaches 1.853. Thus, the CA-DRL trading strategy is significantly superior to traditional methods and to CA-GA-ST

Robust and Multi-objective Portfolio Selection

In this thesis, robust and multi-objective portfolio selection problem will be studied. New models and computational algorithms will be developed to solve the proposed models. In particularly, we have studied multi-objective portfolio selection with inexact information on investment return and covariance matrix. The problems have been transformed into easily solvable problems through theoretical analysis. Numerical experiments are presented to validate the methods

Investigating evolutionary computation with smart mutation for three types of Economic Load Dispatch optimisation problem

The Economic Load Dispatch (ELD) problem is an optimisation task concerned with how electricity generating stations can meet their customers’ demands while minimising under/over-generation, and minimising the operational costs of running the generating units. In the conventional or Static Economic Load Dispatch (SELD), an optimal solution is sought in terms of how much power to produce from each of the individual generating units at the power station, while meeting (predicted) customers’ load demands. With the inclusion of a more realistic dynamic view of demand over time and associated constraints, the Dynamic Economic Load Dispatch (DELD) problem is an extension of the SELD, and aims at determining the optimal power generation schedule on a regular basis, revising the power system configuration (subject to constraints) at intervals during the day as demand patterns change. Both the SELD and DELD have been investigated in the recent literature with modern heuristic optimisation approaches providing excellent results in comparison with classical techniques. However, these problems are defined under the assumption of a regulated electricity market, where utilities tend to share their generating resources so as to minimise the total cost of supplying the demanded load. Currently, the electricity distribution scene is progressing towards a restructured, liberalised and competitive market. In this market the utility companies are privatised, and naturally compete with each other to increase their profits, while they also engage in bidding transactions with their customers. This formulation is referred to as: Bid-Based Dynamic Economic Load Dispatch (BBDELD). This thesis proposes a Smart Evolutionary Algorithm (SEA), which combines a standard evolutionary algorithm with a “smart mutation” approach. The so-called ‘smart’ mutation operator focuses mutation on genes contributing most to costs and penalty violations, while obeying operational constraints. We develop specialised versions of SEA for each of the SELD, DELD and BBDELD problems, and show that this approach is superior to previously published approaches in each case. The thesis also applies the approach to a new case study relevant to Nigerian electricity deregulation. Results on this case study indicate that our SEA is able to deal with larger scale energy optimisation tasks

Smart management strategies of utility-scale energy storage systems in power networks

Power systems are presently experiencing a period of rapid change driven by various interrelated issues, e.g., integration of renewables, demand management, power congestion, power quality requirements, and frequency regulation. Although the deployment of Energy Storage Systems (ESSs) has been shown to provide effective solutions to many of these issues, misplacement or non-optimal sizing of these systems can adversely affect network performance. This present research has revealed some novel working strategies for optimal allocation and sizing of utility-scale ESSs to address some important issues of power networks at both distribution and transmission levels. The optimization strategies employed for ESS placement and sizing successfully improved the following aspects of power systems: performance and power quality of the distribution networks investigated, the frequency response of the transmission networks studied, and facilitation of the integration of renewable generation (wind and solar). This present research provides effective solutions to some real power industry problems including minimizationof voltage deviation, power losses, peak demand, flickering, and frequency deviation as well as rate of change of frequency (ROCOF). Detailed simulation results suggest that ESS allocation using both uniform and non-uniform ESS sizing approaches is useful for improving distribution network performance as well as power quality. Regarding performance parameters, voltage profile improvement, real and reactive power losses, and line loading are considered, while voltage deviation and flickers are taken into account as power quality parameters. Further, the study shows that the PQ injection-based ESS placement strategy performs better than the P injection-based approach (in relation to performance improvement), providing more reactive power compensations. The simulation results also demonstrate that obtaining the power size of a battery ESS (MVA) is a sensible approach for frequency support. Hence, an appropriate sizing of grid-scale ESSs including tuning of parameters Kp and Tip (active part of the PQ controller) assist in improving the frequency response by providing necessary active power. Overall, the proposed ESS allocation and sizing approaches can underpin a transition plan from the current power grid to a future one

Monte Carlo Method with Heuristic Adjustment for Irregularly Shaped Food Product Volume Measurement

Volume measurement plays an important role in the production and processing of food products. Various methods have been proposed to measure the volume of food products with irregular shapes based on 3D reconstruction. However, 3D reconstruction comes with a high-priced computational cost. Furthermore, some of the volume measurement methods based on 3D reconstruction have a low accuracy. Another method for measuring volume of objects uses Monte Carlo method. Monte Carlo method performs volume measurements using random points. Monte Carlo method only requires information regarding whether random points fall inside or outside an object and does not require a 3D reconstruction. This paper proposes volume measurement using a computer vision system for irregularly shaped food products without 3D reconstruction based on Monte Carlo method with heuristic adjustment. Five images of food product were captured using five cameras and processed to produce binary images. Monte Carlo integration with heuristic adjustment was performed to measure the volume based on the information extracted from binary images. The experimental results show that the proposed method provided high accuracy and precision compared to the water displacement method. In addition, the proposed method is more accurate and faster than the space carving method