An Evolutionary Computation Approach to Scenario-Based Risk-Return Portfolio Optimization for General Risk Measures

Authors:
Ronald Hochreiter
Affiliations:
Department of Statistics and Decision Support Systems, University of Vienna, Universitätsstraße 5/9, 1010 Vienna, Austria
Venue:
Proceedings of the 2007 EvoWorkshops 2007 on EvoCoMnet, EvoFIN, EvoIASP,EvoINTERACTION, EvoMUSART, EvoSTOC and EvoTransLog: Applications of Evolutionary Computing
Year:
2009

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Abstract

Due to increasing complexity and non-convexity of financial engineering problems, biologically inspired heuristic algorithms gained significant importance especially in the area of financial decision optimization. In this paper, the stochastic scenario-based risk-return portfolio optimization problem is analyzed and solved with an evolutionary computation approach. The advantage of applying this approach is the creation of a common framework for an arbitrary set of loss distribution-based risk measures, regardless of their underlying structure. Numerical results for three of the most commonly used risk measures conclude the paper.