Time-stamped resampling for robust evolutionary portfolio optimization Articles uri icon

publication date

  • September 2012

start page

  • 10722

end page

  • 10730

issue

  • 12

volume

  • 39

international standard serial number (ISSN)

  • 0957-4174

electronic international standard serial number (EISSN)

  • 1873-6793

abstract

  • Traditional mean-variance financial portfolio optimization is based on two sets of parameters, estimates for the asset returns and the variance-covariance matrix. The allocations resulting from both traditional methods and heuristics are very dependent on these values. Given the unreliability of these forecasts, the expected risk and return for the portfolios in the efficient frontier often differ from the expected ones. In this work we present a resampling method based on time-stamping to control the problem. The approach, which is compatible with different evolutionary multiobjective algorithms, is tested with four different alternatives. We also introduce new metrics to assess the reliability of forecast efficient frontiers.