Genetic relation algorithm with guided mutation for the large-scale portfolio optimization

Authors:
Yan Chen;Shingo Mabu;Kotaro Hirasawa
Affiliations:
School of Statistics and Management, Shanghai University of Finance and Economics, Shanghai 200433, China;Graduate School of Information, Production and Systems, Waseda University, Kitakyushu 8080135, Japan;Graduate School of Information, Production and Systems, Waseda University, Kitakyushu 8080135, Japan
Venue:
Expert Systems with Applications: An International Journal
Year:
2011

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Abstract

The survey of the relevant literatures shows that there have been many studies for portfolio optimization problems and that the number of studies which have investigated the optimum portfolio using evolutionary computation is quite large. But, almost none of these studies deals with genetic relation algorithm (GRA), where GRA is one of the evolutionary methods with graph structure. This study presents an approach to large-scale portfolio optimization problems using GRA with a new operator, called guided mutation. In order to pick up the most efficient portfolio, GRA considers the correlation coefficient between stock brands as strength, which indicates the relation between nodes in each individual of GRA. Guided mutation generates offspring according to the average value of correlation coefficients in each individual, which means to enhance the exploitation ability of evolution of GRA. A genetic relation algorithm with guided mutation (GRA/G) for the portfolio optimization is proposed in this paper. Genetic network programming (GNP), which was proposed in our previous research, is used to validate the performance of the portfolio generated with GRA/G. The results show that GRA/G approach is successful in portfolio optimization.