Heuristic Optimisation in Financial Modelling

There is a large number of optimisation problems in theoretical and applied finance that are difficult to solve as they exhibit multiple local optima or are not ‘well- behaved’ in other ways (eg, discontinuities in the objective function). One way to deal with such problems is to adjust and to simplify them, for instance by dropping constraints, until they can be solved with standard numerical methods. This paper argues that an alternative approach is the application of optimisation heuristics like Simulated Annealing or Genetic Algorithms. These methods have been shown to be capable to handle non-convex optimisation problems with all kinds of constraints. To motivate the use of such techniques in finance, the paper presents several actual problems where classical methods fail. Next, several well-known heuristic techniques that may be deployed in such cases are described. Since such presentations are quite general, the paper describes in some detail how a particular problem, portfolio selection, can be tackled by a particular heuristic method, Threshold Accepting. Finally, the stochastics of the solutions obtained from heuristics are discussed. It is shown, again for the example from portfolio selection, how this random character of the solutions can be exploited to inform the distribution of computations.Optimisation heuristics, Financial Optimisation, Portfolio Optimisation

A hybrid scatter search. Electromagnetism meta-heuristic for project scheduling.

In the last few decades, several effective algorithms for solving the resource-constrained project scheduling problem have been proposed. However, the challenging nature of this problem, summarised in its strongly NP-hard status, restricts the effectiveness of exact optimisation to relatively small instances. In this paper, we present a new meta-heuristic for this problem, able to provide near-optimal heuristic solutions. The procedure combines elements from scatter search, a generic population-based evolutionary search method, and a recently introduced heuristic method for the optimisation of unconstrained continuous functions based on an analogy with electromagnetism theory, hereafter referred to as the electromagnetism meta-heuristic. We present computational experiments on standard benchmark datasets, compare the results with current state-ofthe-art heuristics, and show that the procedure is capable of producing consistently good results for challenging instances of the resource-constrained project scheduling problem. We also demonstrate that the algorithm outperforms state-of-the-art existing heuristics.Algorithms; Effectiveness; Electromagnetism; Functions; Heuristic; Project scheduling; Scatter; Scatter search; Scheduling; Theory;

A GA-based technique for the scheduling of storage tanks

YesThis paper proposes the application of a genetic algorithm based methodology for the scheduling of storage tanks. The proposed approach is an integration of GA and heuristic rule-based techniques, which decomposes the complex mixed integer optimisation problem into integer and real number subproblems. The GA string considers the integer problem, and the heuristic approach solves the real number problems within the GA framework. The algorithm is demonstrated for a test problem related to a water treatment facility at a port, and has been found to give a significantly better schedule than those generated using a heuristic-based approach

Free Search Towards Multidimensional Optimisation Problems

The article presents experimental results achieved from a novel heuristic algorithm for real-value search and optimisation called Free Search (FS). The aim is to clarify the abilities of this method to return optimal solutions from multidimensional search spaces currently resistant to other search techniques

Seeing Shapes in Clouds: On the Performance-Cost trade-off for Heterogeneous Infrastructure-as-a-Service

In the near future FPGAs will be available by the hour, however this new Infrastructure as a Service (IaaS) usage mode presents both an opportunity and a challenge: The opportunity is that programmers can potentially trade resources for performance on a much larger scale, for much shorter periods of time than before. The challenge is in finding and traversing the trade-off for heterogeneous IaaS that guarantees increased resources result in the greatest possible increased performance. Such a trade-off is Pareto optimal. The Pareto optimal trade-off for clusters of heterogeneous resources can be found by solving multiple, multi-objective optimisation problems, resulting in an optimal allocation of tasks to the available platforms. Solving these optimisation programs can be done using simple heuristic approaches or formal Mixed Integer Linear Programming (MILP) techniques. When pricing 128 financial options using a Monte Carlo algorithm upon a heterogeneous cluster of Multicore CPU, GPU and FPGA platforms, the MILP approach produces a trade-off that is up to 110% faster than a heuristic approach, and over 50% cheaper. These results suggest that high quality performance-resource trade-offs of heterogeneous IaaS are best realised through a formal optimisation approach.Comment: Presented at Second International Workshop on FPGAs for Software Programmers (FSP 2015) (arXiv:1508.06320

On applications of ant colony optimisation techniques in solving assembly line balancing problems

PublishedArticleRecently, there is an increasing interest in applications of meta-heuristic approaches in solving various engineering problems. Meta-heuristics help both academics and practitioners to get not only feasible but also near optimal solutions where obtaining a solution for the relevant problem is not possible in a reasonable time using traditional optimisation techniques. Ant colony optimisation algorithm is inspired from the collective behaviour of ants and one of the most efficient meta-heuristics in solving combinatorial optimisation problems. One of the main application areas of ant colony optimisation algorithm is assembly line balancing problem. In this paper, we first give the running principle of ant colony optimisation algorithm and then review the applications of ant colony optimisation based algorithms on assembly line balancing problems in the literature. Strengths and weaknesses of proposed algorithms to solve various problem types in the literature have also been discussed in this research. The main aim is to lead new researches in this domain and spread the application areas of ant colony optimisation techniques in various aspects of line balancing problems. Existing researches in the literature indicate that ant colony optimisation methodology has a promising solution performance to solve line balancing problems especially when integrated with other heuristic and/or meta-heuristic methodologies

Some Computational Aspects of Essential Properties of Evolution and Life

While evolution has inspired algorithmic methods of heuristic optimisation, little has been done in the way of using concepts of computation to advance our understanding of salient aspects of biological evolution. We argue that under reasonable assumptions, interesting conclusions can be drawn that are of relevance to behavioural evolution. We will focus on two important features of life--robustness and fitness optimisation--which, we will argue, are related to algorithmic probability and to the thermodynamics of computation, subjects that may be capable of explaining and modelling key features of living organisms, and which can be used in understanding and formulating algorithms of evolutionary computation

Offline Learning for Sequence-based Selection Hyper-heuristics

This thesis is concerned with finding solutions to discrete NP-hard problems. Such problems occur in a wide range of real-world applications, such as bin packing, industrial flow shop problems, determining Boolean satisfiability, the traveling salesman and vehicle routing problems, course timetabling, personnel scheduling, and the optimisation of water distribution networks. They are typically represented as optimisation problems where the goal is to find a ``best'' solution from a given space of feasible solutions. As no known polynomial-time algorithmic solution exists for NP-hard problems, they are usually solved by applying heuristic methods. Selection hyper-heuristics are algorithms that organise and combine a number of individual low level heuristics into a higher level framework with the objective of improving optimisation performance. Many selection hyper-heuristics employ learning algorithms in order to enhance optimisation performance by improving the selection of single heuristics, and this learning may be classified as either online or offline. This thesis presents a novel statistical framework for the offline learning of subsequences of low level heuristics in order to improve the optimisation performance of sequenced-based selection hyper-heuristics. A selection hyper-heuristic is used to optimise the HyFlex set of discrete benchmark problems. The resulting sequences of low level heuristic selections and objective function values are used to generate an offline learning database of heuristic selections. The sequences in the database are broken down into subsequences and the mathematical concept of a logarithmic return is used to discriminate between ``effective'' subsequences, that tend to lead to improvements in optimisation performance, and ``disruptive'' subsequences that tend to lead to worsening performance. Effective subsequences are used to improve hyper-heuristics performance directly, by embedding them in a simple hyper-heuristic design, and indirectly as the inputs to an appropriate hyper-heuristic learning algorithm. Furthermore, by comparing effective subsequences across different problem domains it is possible to investigate the potential for cross-domain learning. The results presented here demonstrates that the use of well chosen subsequences of heuristics can lead to small, but statistically significant, improvements in optimisation performance

Approximation of System Components for Pump Scheduling Optimisation

© 2015 The Authors. Published by Elsevier Ltd.The operation of pump systems in water distribution systems (WDS) is commonly the most expensive task for utilities with up to 70% of the operating cost of a pump system attributed to electricity consumption. Optimisation of pump scheduling could save 10-20% by improving efficiency or shifting consumption to periods with low tariffs. Due to the complexity of the optimal control problem, heuristic methods which cannot guarantee optimality are often applied. To facilitate the use of mathematical optimisation this paper investigates formulations of WDS components. We show that linear approximations outperform non-linear approximations, while maintaining comparable levels of accuracy