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Particle Swarm Algorithm: An Application on Portfolio Optimization

Particle Swarm Algorithm: An Application on Portfolio Optimization

Burcu Adiguzel Mercangoz
Copyright: © 2019 |Pages: 33
ISBN13: 9781522581031|ISBN10: 1522581030|ISBN13 Softcover: 9781522592945|EISBN13: 9781522581048
DOI: 10.4018/978-1-5225-8103-1.ch002
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MLA

Mercangoz, Burcu Adiguzel. "Particle Swarm Algorithm: An Application on Portfolio Optimization." Metaheuristic Approaches to Portfolio Optimization, edited by Jhuma Ray, et al., IGI Global, 2019, pp. 27-59. https://doi.org/10.4018/978-1-5225-8103-1.ch002

APA

Mercangoz, B. A. (2019). Particle Swarm Algorithm: An Application on Portfolio Optimization. In J. Ray, A. Mukherjee, S. Dey, & G. Klepac (Eds.), Metaheuristic Approaches to Portfolio Optimization (pp. 27-59). IGI Global. https://doi.org/10.4018/978-1-5225-8103-1.ch002

Chicago

Mercangoz, Burcu Adiguzel. "Particle Swarm Algorithm: An Application on Portfolio Optimization." In Metaheuristic Approaches to Portfolio Optimization, edited by Jhuma Ray, et al., 27-59. Hershey, PA: IGI Global, 2019. https://doi.org/10.4018/978-1-5225-8103-1.ch002

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Abstract

Optimization is discovering an alternative with the most cost-effective or highest-achievable performance under the given constraints, by maximizing desired factors and minimizing undesired ones. Portfolio optimization in finance depends on selecting assets from an opportunity set which yields highest expected return on each level of portfolio risk. Optimization algorithms based on natural events are called heuristic algorithms. The particle swarm optimization (PSO) is a population-based heuristic optimization technique. The technique is inspired by the ability of animals such as birds and fish to adapt to their environment by applying a “sharing of knowledge” approach, to find rich food sources and to avoid hunting. This chapter focuses on portfolio selection problems and shows how to manage financial portfolios using a particle swarm optimization (PSO) technique which is a heuristic algorithm. In order to better understand the subject, the technique has been evaluated in Istanbul Stock Exchange for three transportation sector stocks.

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