• DOI:10.4018/IJAMC.2015040101
• Corpus ID: 10030979

A Local Search Approach to Solve a Financial Portfolio Design Problem

@article{Lebbah2015ALS,
  title={A Local Search Approach to Solve a Financial Portfolio Design Problem},
  author={Fatima Zohra Lebbah and Yahia Lebbah},
  journal={Int. J. Appl. Metaheuristic Comput.},
  year={2015},
  volume={6},
  pages={1-17}
}

• Fatima Zohra Lebbah, Yahia Lebbah
• Published 1 April 2015
• Computer Science
• Int. J. Appl. Metaheuristic Comput.

This paper introduces a local search optimization technique for solving efficiently a financial portfolio design problem which consists to affect assets to portfolios, allowing a compromise between maximizing gains and minimizing losses. This practical problem appears usually in financial engineering, such as in the design of CDO-squared portfolios. This problem has been modeled by Flener et al. who proposed an exact method to solve it. It can be formulated as a quadratic program on the 0-1 domain. It is well known that exact solving approaches on difficult and large instances of quadratic integer programs are known to be inefficient. That is why this work has adopted a local search method. It proposes neighborhood and evaluation functions specialized on this problem. To boost the local search process, it also proposes a greedy algorithm to start the search with an optimized initial configuration. Experimental results on non-trivial instances of the problem show the effectiveness of this work's approach.