A fuzzy GGA-based approach to speed up the evolutionary process for diverse group stock portfolio optimization¹

Issue title: Special Section: Collective intelligence in information systems

Guest editors: Ngoc Thanh Nguyen, Edward Szczerbicki, Bogdan Trawiński and Van Du Nguyen

Article type: Research Article

Authors: Chen, Chun-Hao^a | Chiang, Bing-Yang^b | Hong, Tzung-Pei^{b; c; *} | Wang, Ding-Chau^d | Lin, Jerry Chun-Wei^e | Gankhuyag, Munkhjargal^a

Affiliations: [a] Department of Computer Science and Information Engineering, Tamkang University, Taipei, Taiwan | [b] Department of Computer Science and Engineering, National Sun Yat-sen University, Kaohsiung, Taiwan | [c] Department of Computer Science and Information Engineering, National University of Kaohsiung, Kaohsiung, Taiwan | [d] Department of Information Management, Southern Taiwan University of Science and Technology, Tainan, Taiwan | [e] Department of Computing, Mathematics, and Physics, Western Norway University of Computer Sciences, Bergen, Norway

Correspondence: [*] Corresponding author. Tzung-Pei Hong, E-mail: [email protected].

Abstract: Investment is always an interesting and important issue for people since the international financial crises are hard to predict and the government’s policy may have an influence on economic activities. In the past, many researches have been proposed on portfolio issues. In some of these studies, the group stock portfolio (GSP) is utilized to provide various alternative stocks to an investor. The diverse group stock portfolio (DGSP) optimization approach has then been designed because the diversity of industries within a group can affect the performance of a final GSP. However, these approaches still have some problems to be solved. In this paper, we propose an algorithm to improve the efficiency and effectiveness of the previous work. In the proposed approach, a new chromosome representation and an enhanced fitness function are applied to find a better DGSP with lower risk than before. Moreover, we design a fuzzy grouping genetic algorithm (FGGA) based on the concept of collective intelligence which utilizes the fuzzy logic to dynamically tune the parameters in the evolution process for finding an appropriate DGSP. A mechanism is also designed to repair non-feasible chromosomes in the population. Through the above improvements, the proposed approach can not only focus on finding the best solution but also speed up the evolution process. Finally, experiments made on real datasets show the merits of the proposed approach.

Keywords: Collective intelligence, diverse group stock portfolio, fuzzy grouping genetic algorithm, grouping problem, individual repair mechanism, portfolio optimization

DOI: 10.3233/JIFS-179354

Journal: Journal of Intelligent & Fuzzy Systems, vol. 37, no. 6, pp. 7465-7479, 2019