Portfolio optimization with tri-objective for index fund management

Article type: Research Article

Authors: Chen, Yao-Tsung^{; *} | Sheng, Yang

Affiliations: Department of Computer Science and Information Engineering, National Penghu University of Science and Technology, Taiwan

Correspondence: [*] Corresponding author: Yao-Tsung Chen, Department of Computer Science and Information Engineering, National Penghu University of Science and Technology, No.300, Liuhe Rd., Magong City, Penghu County 880011, Taiwan. E-mail: [email protected].

Abstract: Using an index fund is a popular strategy that is designed to simulate the behavior of a market index and obtain the excess return that is more stable than other mutual funds. In setting up an index fund, investors must first choose a small number of stocks and then assign a weight to each selected stock. However, with traditional methods, investors hardly determine how well the designed index fund can mimic the market index. The main objective of this paper is to demonstrate the improvement of index fund performance by using a multi-objective optimization algorithm that can assign weights automatically.

Keywords: Index fund, portfolio optimization, multi-objective optimization algorithm

DOI: 10.3233/AF-200378

Journal: Algorithmic Finance, vol. 9, no. 3-4, pp. 121-127, 2022