Cardinality constrained portfolio optimisation
Fieldsend, Jonathan E.
Lecture Notes in Computer Science
Springer Berlin Heidelberg
The traditional quadratic programming approach to portfolio optimisation is difficult to implement when there are cardinality constraints. Recent approaches to resolving this have used heuristic algorithms to search for points on the cardinality constrained frontier. However, these can be computationally expensive when the practitioner does not know a priori exactly how many assets they may desire in a portfolio, or what level of return/risk they wish to be exposed to without recourse to analysing the actual trade-off frontier.This study introduces a parallel solution to this problem. By extending techniques developed in the multi-objective evolutionary optimisation domain, a set of portfolios representing estimates of all possible cardinality constrained frontiers can be found in a single search process, for a range of portfolio sizes and constraints. Empirical results are provided on emerging markets and US asset data, and compared to unconstrained frontiers found by quadratic programming.
Copyright © 2004 Springer-Verlag Berlin Heidelberg. The final publication is available at link.springer.com
Book title: Intelligent Data Engineering and Automated Learning – IDEAL 2004
5th International Conference on Intelligent Data Engineering and Automated Learning (IDEAL 2004), Exeter, UK. August 25-27, 2004
Vol. 3177, pp. 788-793