Portfolio management with heuristic optimization.

DOI10.1007/B136219MaRDI QIDQ852294zbMATH OpenOpenAlexFDO

Publication date 28 November 2006

Published in Advances in Computational Management Science (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/b136219

heuristic optimization portfolio management

Approximation methods and heuristics in mathematical programming (90C59) Research exposition (monographs, survey articles) pertaining to game theory, economics, and finance (91-02)

Review text

The book under review is an outgrowth of a habilitation's thesis (German) and consists out of three parts. The first chapter gives an overview of by now classical models in portfolio management such as for instance the optimization model of Markowitz and Arbitrage Pricing Theory. These models are tractable, but very often too simple to describe the financial reality in an appropriate way. The second chapter gives an overview of a number of heuristic optimization techniques, such as for instance Simulated Annealing, Ant Colony Optimization and Memetic Algorithms. These techniques are applied in the third part of the book, in the chapters three up till chapter seven, on more realistic optimization models related to portfolio management, as the classical optimization techniques often fail on these models. All these chapters basically are divided in three parts, first there is a description of the financial problem, and a statement of the optimization model, then the heuristic optimization scheme is described, and the chapters conclude with elaborate empirical studies, where the data refer to real-world problems, including an application of the optimization scheme and consequences for portfolio management. The optimization models in these chapters can be considered as complicated offspring of models in chapter one. The book ends with an extensive bibliography. In order to benefit from this book one already has to be familiar with the classical models of portfolio management and with classical optimization algorithms. But even when one is familiar with these areas, this does not mean, that one can easily apply the results in the book, because the description of the algorithms is in the view of the reviewer not always detailed enough. But with the help of the references to the original papers one really gets running. For persons active in computational portfolio management this book offers quite some interesting stimuli. Researchers active in heuristic optimization, and there are numerous of them, might find some new problems in the area of finance to apply there optimization techniques.

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