Pages: 91-111

Abstract

In this paper, we scrutinize the problem of finding the optimal possible tradeoff of risk against return in relation to the standard mean-variance portfolio selection model; including cardinality constraints that limit a portfolio to have a specified number of assets, and to impose limits on the proportion of the portfolio held in a given asset. Chang et al [2] were the first to introduce cardinality constrained portfolio optimization problem and included several algorithms to solve the problem. In this paper, a novel hybrid meta-heuristic algorithm based on genetic algorithm and simulated annealing is developed to improve the results obtained in [2]. Besides, a decision support system based on the hybrid meta-heuristic algorithm is developed to help the investor do tradeoffs between possible portfolios and decide on a suitable portfolio among the assets.