Differential evolution for multiobjective portfolio optimization

Financial portfolio optimization is a challenging problem. First, the problem is multiobjective (i.e.: minimize risk and maximize profit) and the objective functions are often multimodal and non smooth (e.g.: value at risk). Second, managers have often to face real-world constraints, which are typically non-linear. Hence, conventional optimization techniques, such as quadratic programming, cannot be used. Stochastic search heuristic can be an attractive alternative. In this paper, we propose a new multiobjective algorithm for portfolio optimization: DEMPO - Differential Evolution for Multiobjective Portfolio Optimization. The main advantage of this new algorithm is its generality, i.e., the ability to tackle a portfolio optimization task as it is, without simplifications. Our empirical results show the capability of our approach of obtaining highly accurate results in very reasonable runtime, in comparison with quadratic programming and another state-of-art search heuristic, the so-called NSGA II

Differential Evolution for Multiobjective Portfolio Optimization

Financial portfolio optimization is a challenging problem. First, the problem is multiobjective (i.e.: minimize risk and maximize profit) and the objective functions are often multimodal and non smooth (e.g.: value at risk). Second, managers have often to face real-world constraints, which are typically non-linear. Hence, conventional optimization techniques, such as quadratic programming, cannot be used. Stochastic search heuristic can be an attractive alternative. In this paper, we propose a new multiobjective algorithm for portfolio optimization: DEMPO - Differential Evolution for Multiobjective Portfolio Optimization. The main advantage of this new algorithm is its generality, i.e., the ability to tackle a portfolio optimization task as it is, without simplifications. Our empirical results show the capability of our approach of obtaining highly accurate results in very reasonable runtime, in comparison with quadratic programming and another state-of-art search heuristic, the so-called NSGA I

Differential Evolution and Combinatorial Search for Constrained Index Traking

Index tracking is a valuable low-cost alternative to active portfolio management. The implementation of a quantitative approach, however, is a major challenge from an optimization perspective. The optimal selection of a group of assets that can replicate the index of a much larger portfolio requires both to find the optimal subset of assets and to fine-tune their weights. The former is a combinatorial, the latter a continuous numerical problem. Both problems need to be addressed simultaneously, because whether or not a selection of assets is promising depends on the allocation weights and vice versa. Moreover, the problem is usually of high dimension. Typically, an optimal subset of 30-150 positions out of 100-600 need to be selected and their weights determined. Search heuristics can be a viable and valuable alternative to traditional methods, which often cannot deal with the problem. In this paper, we propose a new optimization method, which is partly based on Differential Evolution (DE) and on combinatorial search. The main advantage of our method is that it can tackle index tracking problem as complex as it is, generating accurate and robust results

Genetic algorithms with self-organizing behaviour in dynamic environments

Copyright @ 2007 Springer-VerlagIn recent years, researchers from the genetic algorithm (GA) community have developed several approaches to enhance the performance of traditional GAs for dynamic optimization problems (DOPs). Among these approaches, one technique is to maintain the diversity of the population by inserting random immigrants into the population. This chapter investigates a self-organizing random immigrants scheme for GAs to address DOPs, where the worst individual and its next neighbours are replaced by random immigrants. In order to protect the newly introduced immigrants from being replaced by fitter individuals, they are placed in a subpopulation. In this way, individuals start to interact between themselves and, when the fitness of the individuals are close, one single replacement of an individual can affect a large number of individuals of the population in a chain reaction. The individuals in a subpopulation are not allowed to be replaced by individuals of the main population during the current chain reaction. The number of individuals in the subpopulation is given by the number of individuals created in the current chain reaction. It is important to observe that this simple approach can take the system to a self-organization behaviour, which can be useful for GAs in dynamic environments.Financial support was obtained from FAPESP (Proc. 04/04289-6)

Parental Reflective Functioning Affects Sensitivity to Distress in Mothers with Postpartum Depression

Parental reflective functioning (PRF) refers to the capacity of caregivers to reflect upon their children’s internal mental states and intentions, which is seen as crucial for parental sensitivity, defined as the adequate behavioral response to an infant’s signals. In this study, the effect of maternal PRF on sensitivity during the mother–infant interaction was examined in a clinical sample of 50 mothers who were experiencing postpartum depression and their infants aged three to 10 months. Mother and infant were exposed to emotional distress using the still-face procedure. It was hypothesized that low levels of PRF are associated with a decrease in maternal sensitivity in response to distress. Maternal PRF was assessed using the parental reflective functioning questionnaire (PRF). The subscales measured interest and curiosity in mental states, certainty about mental states (i.e., the recognition of the opacity of mental states), and pre-mentalizing modes (i.e., non-mentalizing modes), whereas sensitivity was evaluated using the maternal behavior Q-sort (Mini-MBQS-V). The results revealed a significant overall decrease in maternal sensitivity. As expected, the higher the scores on the pre-mentalizing modes, which indicated low levels of mentalizing through the mothers’ repudiation or defense against it, the greater the decreases in sensitivity. No effects with respect to the interest and curiosity in mental states or the certainty about mental states were found. Our findings determined that the pre-mentalizing modes are predictive of sensitivity to distress in mothers with postpartum depression