Systems and methods for efficient frontier supplementation in multi-objective portfolio analysis
The systems and methods of the invention are directed to portfolio optimization and related techniques. For example, the invention provides a method for multi-objective portfolio optimization for use in investment decisions based on competing objectives and a plurality of constraints constituting a portfolio problem, the method comprising: performing a first multi-objective optimization process, based on competing objectives, to generate an efficient frontier of possible solutions; observing the generated efficient frontier; based on the observing, identifying an area of the efficient frontier in which there is a gap; and effecting a gap filling process by which the efficient frontier is supplemented in the area of the gap, the efficient frontier being used in investment decisioning.
1. A method for efficient frontier supplementation in multi-objective portfolio analysis, the method comprising:
generating an initial population of feasible solutions of portfolio allocations in a computing device;
generating a non-dominated solution set comprising a first efficient frontier in a portfolio performance space having at least three-dimensions using one of an evolutionary algorithm and optimization processing by using the computing device;
identifying at least one region having a gap in the at least three-dimensions of the first efficient frontier using a visualization tool;
interactively placing at least one target in the at least one region of the first efficient frontier using the visualization tool; and
providing the initial population of feasible solutions to a Target Objectives Genetic Algorithm (TOGA); and
performing TOGA processing in the at least one region of the first efficient frontier to generate supplemental solutions to the first efficient frontier and to create a second efficient frontier, the second efficient frontier being used in investment decisions.
2. The method of claim 1 , further including the step of selecting at least one portfolio from the second efficient frontier.
3. The method of claim 1 , wherein the TOGA further includes the steps of:
accepting a set of target vectors; and
generating a series of chromosomes, evaluated on the basis of the accepted target vectors, over multiple generations.
4. The method of claim 3 , wherein the TOGA further includes the step of evaluating a fitness of each chromosome until a population with an acceptable fitness is determined so as to fill in the gap.
5. The method of claim 1 , wherein the gap is a region that is sparsely populated by possible solutions.
6. A program storage device readable by a machine, tangibly embodying a program of instructions executable by the machine to perform method steps for efficient frontier supplementation in multi-objective portfolio analysis, said method steps comprising:
generating an initial population of feasible solutions of portfolio allocations in a computing device;
generating a non-dominated solution set comprising a first efficient frontier in a portfolio performance space having at least three-dimensions using one of an evolutionary algorithm and optimization processing by using the computing device;
identifying at least one region having a gap in the at least three-dimensions of the first efficient frontier using a visualization tool;
interactively placing at least one target in the at least one region of the first efficient frontier using the visualization tool; and
providing the initial population of feasible solutions to a Target Objectives Genetic Algorithm (TOGA); and
performing TOGA processing in the at least one region of the first efficient frontier to generate supplemental solutions to the first efficient frontier and create a second efficient frontier, the second efficient frontier being used in investment decisions.