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

Analysis and modeling of control tasks in dynamic systems

Copyright © 2002 IEEEMost applications of evolutionary algorithms deal with static optimization problems. However, in recent years, there has been a growing interest in time-varying (dynamic) problems, which are typically found in real-world scenarios. One major challenge in this field is the design of realistic test-case generators (TCGs), which requires a systematic analysis of dynamic optimization tasks. So far, only a few TCGs have been suggested. Our investigation leads to the conclusion that these TCGs are not capable of generating realistic dynamic benchmark tests. The result of our research is the design of a new TCG capable of producing realistic nonstationary landscapesRasmus K. Ursem, Thiemo Krink, Mikkel T. Jensen, and Zbigniew Michalewic

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)

Multiobjective Optimization using Differential Evolution for Real-World Portfolio Optimization

Portfolio optimization is an important aspect of decision-support in investment management. Realistic portfolio optimization, in contrast to simplistic mean- variance optimization, is a challenging problem, because it requires to determine a setof optimal solutions with respect to multiple objectives, where the objective functions are often multimodal and non-smooth. Moreover, the objectives are subject to various constraints of which many are typically non-linear and discontinuous. Conventional optimization methods, such as quadratic programming, cannot cope with these realistic problem properties. A valuable alternative are stochastic search heuristics, such as simulated annealing or evolutionary algorithms. We propose a new multiobjective evolutionary algorithm for portfolio optimization, which we call DEMPO - Differential Evolution for Multiobjective Portfolio Optimization. In our experimentation, we compare DEMPO with quadratic programming and another well-known evolutionary algorithm for multiobjective optimization called NSGA-II. The main advantage of DEMPO is its ability to tackle a portfolio optimization task without simplications, while obtaining very satisfying results in reasonable runtime