Multiobjective genetic programming for financial portfolio management in dynamic environments

Multiobjective (MO) optimisation is a useful technique for evolving portfolio optimisation solutions that span a range from high-return/high-risk to low-return/low-risk. The resulting Pareto front would approximate the risk/reward Efficient Frontier [Mar52], and simplifies the choice of investment model for a given client’s attitude to risk. However, the financial market is continuously changing and it is essential to ensure that MO solutions are capturing true relationships between financial factors and not merely over fitting the training data. Research on evolutionary algorithms in dynamic environments has been directed towards adapting the algorithm to improve its suitability for retraining whenever a change is detected. Little research focused on how to assess and quantify the success of multiobjective solutions in unseen environments. The multiobjective nature of the problem adds a unique feature to be satisfied to judge robustness of solutions. That is, in addition to examining whether solutions remain optimal in the new environment, we need to ensure that the solutions’ relative positions previously identified on the Pareto front are not altered. This thesis investigates the performance of Multiobjective Genetic Programming (MOGP) in the dynamic real world problem of portfolio optimisation. The thesis provides new definitions and statistical metrics based on phenotypic cluster analysis to quantify robustness of both the solutions and the Pareto front. Focusing on the critical period between an environment change and when retraining occurs, four techniques to improve the robustness of solutions are examined. Namely, the use of a validation data set; diversity preservation; a novel variation on mating restriction; and a combination of both diversity enhancement and mating restriction. In addition, preliminary investigation of using the robustness metrics to quantify the severity of change for optimum tracking in a dynamic portfolio optimisation problem is carried out. Results show that the techniques used offer statistically significant improvement on the solutions’ robustness, although not on all the robustness criteria simultaneously. Combining the mating restriction with diversity enhancement provided the best robustness results while also greatly enhancing the quality of solutions

Use of Genetic Algorithm in Algorithmic Trading to Optimize Technical Analysis in the International Stock Market (Forex)

Recent studies on financial markets have demonstrated that technical analysis can help us effectively predict the stock market index trend. Business systems are widely used for stock market analysis. This paper uses a genetic algorithm (GA) to develop a stock market trading optimization system. Our proposed system can generate a decision-making strategy for buying, holding, and selling stocks for each day and generate high returns for each stock. The system consists of two stages: removing restricted stocks and producing a stock trading strategy. Accordingly, evolutionary computation, like GA, is highly promising because of its intelligence, flexibility, and search strength (fast and efficient). The multiple-objective nature of the utilized algorithm can be regarded as the center of gravity of the research question. The proper functioning or malfunctioning of the resulting portfolio management can be employed as a benchmark for selecting or discarding the algorithm. On the other hand, the research question is focused on the application of technical analysis indicators. Therefore, both aspects of the research question, namely the multiple-objective nature of the algorithm in terms of the analysis method and technical indicators in terms of features selected for analysis, must be taken into account

Collaborative Multiobjective Evolutionary Algorithms in search of better Pareto Fronts. An application to trading systems

Technical indicators use graphic representations of data sets by applying various mathematical formulas to financial time series of prices. These formulas comprise a set of rules and parameters whose values are not necessarily known and depend on many factors: the market in which it operates, the size of the time window, and others. This paper focuses on the real-time optimization of the parameters applied for analyzing time series of data. In particular, we optimize the parameters of technical and financial indicators and propose other applications, such as glucose time series. We propose the combination of several Multi-objective Evolutionary Algorithms (MOEAs). Unlike other approaches, this paper applies a set of different MOEAs, collaborating to construct a global Pareto Set of solutions. Solutions for financial problems seek high returns with minimal risk. The optimization process is continuous and occurs at the same frequency as the investment time interval. This technique permits the application of non-dominated solutions obtained with different MOEAs simultaneously. Experimental results show that this technique increases the returns of the commonly used Buy \& Hold strategy and other multi-objective strategies, even for daily operations

Robust optimization of algorithmic trading systems

GAs (Genetic Algorithms) and GP (Genetic Programming) are investigated for finding robust Technical Trading Strategies (TTSs). TTSs evolved with standard GA/GP techniques tend to suffer from over-fitting as the solutions evolved are very fragile to small disturbances in the data. The main objective of this thesis is to explore optimization techniques for GA/GP which produce robust TTSs that have a similar performance during both optimization and evaluation, and are also able to operate in all market conditions and withstand severe market shocks. In this thesis, two novel techniques that increase the robustness of TTSs and reduce over-fitting are described and compared to standard GA/GP optimization techniques and the traditional investment strategy Buy & Hold. The first technique employed is a robust multi-market optimization methodology using a GA. Robustness is incorporated via the environmental variables of the problem, i.e. variablity in the dataset is introduced by conducting the search for the optimum parameters over several market indices, in the hope of exposing the GA to differing market conditions. This technique shows an increase in the robustness of the solutions produced, with results also showing an improvement in terms of performance when compared to those offered by conducting the optimization over a single market. The second technique is a random sampling method we use to discover robust TTSs using GP. Variability is introduced in the dataset by randomly sampling segments and evaluating each individual on different random samples. This technique has shown promising results, substantially beating Buy & Hold. Overall, this thesis concludes that Evolutionary Computation techniques such as GA and GP combined with robust optimization methods are very suitable for developing trading systems, and that the systems developed using these techniques can be used to provide significant economic profits in all market conditions

A Fresh Green Index in the World: Building and optimizing a Vegan and Sustainable Index Fund using a Genetic Algorithm and a Heuristic Local Search

Dissertation presented as the partial requirement for obtaining a Master's degree in Statistics and Information Management, specialization in Risk Analysis and ManagementThe curiosity of investors regarding Environmental, Social and Governance (ESG) factors has seen a growth in the last few years (Alcoforado, 2016), as the world faces some of its biggest problems to date, such as Climate Change and Ecological Collapse. As these issues are not to be taken lightly, individuals have started to act, in the hopes of creating a ‘greener’ world. As individuals hope to align with principles such as Sustainability and Veganism, the proposed project hopes to build a Vegan and Sustainable Index Fund, as “An investment is not an investment if it is destroying our planet.” (Shiva, 2017). The aim of the proposed work is, consequently, to build and optimize an Industry and Geographical diversified Index Fund, using a Genetic Algorithm (GA), demonstrating this through the incorporation of Vegan and Sustainable companies, in addition to the global top-50 ESG ranked firms. Index Funds, which are mutual or Exchange-Traded Funds (ETF), are known to be passively managed portfolios, which have been broadly used in hedge trading (Orito, Inoguchi, & Yamamoto, 2008). This study uses historical data from Vegan, Sustainable and ESG-ranked companies as sample data, replacing traditional optimization methods using a Genetic Algorithm. The GA method was applied to a sample of 61 assets, regarding vegan and sustainable companies, further obtaining a well-diversified and non-centred asset allocation. The obtained results confirm the possible efficiency of genetic algorithms, given their high-speed convergence towards a better solution. A few functions were presented in the algorithm, for example the penalty function method, to perform portfolio optimization which expects to maximize profits and minimize risks. Some flaws have been identified in regard to the method applied

Application of computational intelligence to explore and analyze system architecture and design alternatives

Systems Engineering involves the development or improvement of a system or process from effective need to a final value-added solution. Rapid advances in technology have led to development of sophisticated and complex sensor-enabled, remote, and highly networked cyber-technical systems. These complex modern systems present several challenges for systems engineers including: increased complexity associated with integration and emergent behavior, multiple and competing design metrics, and an expansive design parameter solution space. This research extends the existing knowledge base on multi-objective system design through the creation of a framework to explore and analyze system design alternatives employing computational intelligence. The first research contribution is a hybrid fuzzy-EA model that facilitates the exploration and analysis of possible SoS configurations. The second contribution is a hybrid neural network-EA in which the EA explores, analyzes, and evolves the neural network architecture and weights. The third contribution is a multi-objective EA that examines potential installation (i.e. system) infrastructure repair strategies. The final contribution is the introduction of a hierarchical multi-objective evolutionary algorithm (MOEA) framework with a feedback mechanism to evolve and simultaneously evaluate competing subsystem and system level performance objectives. Systems architects and engineers can utilize the frameworks and approaches developed in this research to more efficiently explore and analyze complex system design alternatives --Abstract, page iv