Heuristic algorithms for the cardinality constrained efficient frontier

Heuristic algorithms for the cardinality constrained efficient frontier

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Article ID: iaor20115950
Volume: 213
Issue: 3
Start Page Number: 538
End Page Number: 550
Publication Date: Sep 2011
Journal: European Journal of Operational Research
Authors: , ,
Keywords: heuristics
Abstract:

This paper examines the application of genetic algorithm, tabu search and simulated annealing metaheuristic approaches to finding the cardinality constrained efficient frontier that arises in financial portfolio optimisation. We consider the mean–variance model of Markowitz as extended to include the discrete restrictions of buy‐in thresholds and cardinality constraints. Computational results are reported for publicly available data sets drawn from seven major market indices involving up to 1318 assets. Our results are compared with previous results given in the literature illustrating the effectiveness of the proposed metaheuristics in terms of solution quality and computation time.

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