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Article: Stock portfolio selection using chemical reaction optimization

TitleStock portfolio selection using chemical reaction optimization
Authors
KeywordsChemical Reaction Optimization
Markowitz Model
Sharpe Ratio
Stock Portfolio Selection
Issue Date2011
Citation
World Academy Of Science, Engineering And Technology, 2011, v. 77, p. 458-463 How to Cite?
AbstractStock portfolio selection is a classic problem in finance, and it involves deciding how to allocate an institution's or an individual's wealth to a number of stocks, with certain investment objectives (return and risk). In this paper, we adopt the classical Markowitz mean-variance model and consider an additional common realistic constraint, namely, the cardinality constraint. Thus, stock portfolio optimization becomes a mixed-integer quadratic programming problem and it is difficult to be solved by exact optimization algorithms. Chemical Reaction Optimization (CRO), which mimics the molecular interactions in a chemical reaction process, is a population-based metaheuristic method. Two different types of CRO, named canonical CRO and Super Molecule-based CRO (S-CRO), are proposed to solve the stock portfolio selection problem. We test both canonical CRO and S-CRO on a benchmark and compare their performance under two criteria: Markowitz efficient frontier (Pareto frontier) and Sharpe ratio. Computational experiments suggest that S-CRO is promising in handling the stock portfolio optimization problem.
Persistent Identifierhttp://hdl.handle.net/10722/155625
ISSN
2014 SCImago Journal Rankings: 0.133
References

 

DC FieldValueLanguage
dc.contributor.authorXu, Jen_US
dc.contributor.authorLam, AYSen_US
dc.contributor.authorLi, VOKen_US
dc.date.accessioned2012-08-08T08:34:26Z-
dc.date.available2012-08-08T08:34:26Z-
dc.date.issued2011en_US
dc.identifier.citationWorld Academy Of Science, Engineering And Technology, 2011, v. 77, p. 458-463en_US
dc.identifier.issn2010-376Xen_US
dc.identifier.urihttp://hdl.handle.net/10722/155625-
dc.description.abstractStock portfolio selection is a classic problem in finance, and it involves deciding how to allocate an institution's or an individual's wealth to a number of stocks, with certain investment objectives (return and risk). In this paper, we adopt the classical Markowitz mean-variance model and consider an additional common realistic constraint, namely, the cardinality constraint. Thus, stock portfolio optimization becomes a mixed-integer quadratic programming problem and it is difficult to be solved by exact optimization algorithms. Chemical Reaction Optimization (CRO), which mimics the molecular interactions in a chemical reaction process, is a population-based metaheuristic method. Two different types of CRO, named canonical CRO and Super Molecule-based CRO (S-CRO), are proposed to solve the stock portfolio selection problem. We test both canonical CRO and S-CRO on a benchmark and compare their performance under two criteria: Markowitz efficient frontier (Pareto frontier) and Sharpe ratio. Computational experiments suggest that S-CRO is promising in handling the stock portfolio optimization problem.en_US
dc.languageengen_US
dc.relation.ispartofWorld Academy of Science, Engineering and Technologyen_US
dc.subjectChemical Reaction Optimizationen_US
dc.subjectMarkowitz Modelen_US
dc.subjectSharpe Ratioen_US
dc.subjectStock Portfolio Selectionen_US
dc.titleStock portfolio selection using chemical reaction optimizationen_US
dc.typeArticleen_US
dc.identifier.emailLi, VOK:vli@eee.hku.hken_US
dc.identifier.authorityLi, VOK=rp00150en_US
dc.description.naturelink_to_subscribed_fulltexten_US
dc.identifier.scopuseid_2-s2.0-79959577071en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-79959577071&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume77en_US
dc.identifier.spage458en_US
dc.identifier.epage463en_US
dc.identifier.scopusauthoridXu, J=36242579700en_US
dc.identifier.scopusauthoridLam, AYS=35322184700en_US
dc.identifier.scopusauthoridLi, VOK=7202621685en_US

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