Sinha, Pankaj and Chandwani, Abhishek and Sinha, Tanmay (2013): Algorithm of construction of Optimum Portfolio of stocks using Genetic Algorithm.
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Abstract
The objective of this paper is to develop an algorithm to create an Optimum Portfolio from a large pool of stocks listed in a single market index SPX 500 Index: USA (for example) using Genetic Algorithm. The algorithm selects stocks on the basis of a priority index function designed on company fundamentals, and then genetically assigns optimum weights to the selected stocks by finding a genetically suitable combination of return and risk on the basis of historical data. The effect of genetic evolution on portfolio optimization has been demonstrated by developing a MATLAB code to implement the genetic application of reproduction, crossover and mutation operators. The effectiveness of the obtained portfolio has been successfully tested by running its performance over a six month holding period. It is found that genetic algorithm is successful in providing the optimum weights to stocks which were initially screened through a predetermined priority index function. The constructed portfolio beats the market for the considered holding period by a significant margin.
Item Type: | MPRA Paper |
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Original Title: | Algorithm of construction of Optimum Portfolio of stocks using Genetic Algorithm |
English Title: | Algorithm of construction of Optimum Portfolio of stocks using Genetic Algorithm |
Language: | English |
Keywords: | Optimum Portfolio, Genetic Algorithm, Portfolio Construction, MATLAB |
Subjects: | C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions |
Item ID: | 48204 |
Depositing User: | Pankaj Sinha |
Date Deposited: | 11 Jul 2013 08:24 |
Last Modified: | 27 Sep 2019 07:11 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/48204 |