A Novel Initialization of PSO for Costly Portfolio Selection Problems

Posted: 23 Aug 2015

See all articles by Marco Corazza

Marco Corazza

Ca Foscari University of Venice - Dipartimento di Economia

Giacomo di Tollo

Ca Foscari University of Venice - Dipartimento di Economia

Giovanni Fasano

Ca Foscari University of Venice - Department of Management

Raffaele Pesenti

Ca Foscari University of Venice - Department of Management

Date Written: July 2015

Abstract

In this paper we propose an efficient initialization of a deterministic Particle Swarm Optimization (PSO) scheme. PSO has showed to be promising for solving several unconstrained global optimization problems from real applications, where derivatives are unavailable and the evaluation of the objective function tends to be costly. Here we provide a theoretical framework which motivates the use of a deterministic version of PSO, in place of the standard stochastic iteration currently adopted in the literature. Then, in order to test our proposal, we include a numerical experience using a realistic complex portfolio selection problem. This numerical experience includes the application of PSO to a parameter dependent unconstrained reformulation of the considered portfolio selection problem. The parameters are either adaptively updated as in an exact penalty framework, or they are tuned by the code REVAC. We show that in both these settings our PSO initialization is preferable with respect to the standard proposal from the literature.

Keywords: Deterministic PSO, Global Optimization, Portfolio Selection Problems, Exact Penalty functions

JEL Classification: G11, C44, C61

Suggested Citation

Corazza, Marco and di Tollo, Giacomo and Fasano, Giovanni and Pesenti, Raffaele, A Novel Initialization of PSO for Costly Portfolio Selection Problems (July 2015). Department of Management, Università Ca' Foscari Venezia Working Paper No. 2015 / 04. Available at SSRN: https://ssrn.com/abstract=2649055

Marco Corazza

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Giacomo Di Tollo

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Giovanni Fasano (Contact Author)

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Raffaele Pesenti

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

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