Portfolio Management with Heuristic Optimization
Portfolio Management with Heuristic Optimization consist of two parts. The first part (Foundations) deals with the foundations of portfolio optimization, its assumptions, approaches and the limitations when "traditional" optimization techniques are to be
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Advances in Computational Management Science VOLUME 8
SERIES EDITORS Hans Amman, Eindhoven University of Technology, The Netherlands Berc Rustem, Imperial College, London, United Kingdom
EDITORIAL BOARD Christopher Deissenberg, University of Nantes, France Arthur Farley, University of Oregon, USA Manfred Gilli, University of Geneva, Switzerland David Kendrick, University of Texas at Austin, USA David Luenberger, Stanford University, USA Rik Maes, University of Amsterdam, The Netherlands Istvan Maros, Imperial College, UK John Mulvey, Princeton University, USA Anna Nagurney, University of Massachusetts at Amherst, USA Soren Nielsen, University of Texas at Austin, USA Louis Pau, Ericsson, Alvsjo, Sweden Edison Tse, Stanford University, USA Andrew Whinston, University of Texas at Austin, USA
The title published in this series are listed at the end of this volume.
Portfolio Management with Heuristic Optimization by
DIETMAR MARINGER University of Erfurt, Germany
A C.I.P. Catalogue record for this book is available from the Library of Congress.
ISBN-10 ISBN-13 ISBN-10 ISBN-13
0-387-25852-3 (HB) 978-0-387-25852-2 (HB) 0-387-25853-1 (e-book) 978-0-387-25853-9 (e-book)
Published by Springer, P.O. Box 17, 3300 AA Dordrecht, The Netherlands. www.springeronline.com
Printed on acid-free paper
All Rights Reserved © 2005 Springer No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Printed in the Netherlands.
Preface Managing financial portfolios is primarily concerned with finding a combination of assets that serves an investor’s needs and demands the best. This includes a wide range of aspects such as the analysis of the investor’s attitude towards risk, expected return and consumption; estimations of future payoffs of the financial securities and the risk associated with it have to be made; assessing the relationships between securities; determining fair prices for these securities – and finding an optimal combination of financial securities. Many of these tasks are interrelated: what is an optimal combination depends on the investor’s preferences as well as on the properties of the assets, which, in return, will affect what is considered a fair price and vice versa. The usual (theoretical) frameworks for portfolio management and portfolio optimization assume markets to be frictionless. Though it drives the models away from reality, this assumption has long been considered the only way to make these models approachable. However, with the advent of a new type of optimization and search techniques, heuristic optimization, more complex scenarios and settings can be investigated and many of these simplifying assumptions are no longer necessary. This book is merely conce
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