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Finding the Efficient Frontier for a Mixed Integer Portfolio Choice Problem Using a Multiobjective Algorithm
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Abstract
We propose a computational procedure to find the efficient frontier for the standard Markowitz mean-variance model with discrete variables. The integer constraints limit on the one hand the portfolio to contain a predetermined number of assets and, on the other hand, the proportion of the portfolio held in a given asset. We adapt the multiobjective algorithm NSGA for solving the problem. The algorithm ranks the solutions of each generation in layers based on Pareto non-domination. We have applied the procedure in sixty assets of ATHEX. We have also compared the algorithm with a single genetic algorithm. The computational results indicate that the procedure is promising for this class of problems.
KeywordsMarkowitz ModelMultiobjective OptimizationNSGAPortfolio Selection
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