Particle Swarm Optimization for Constrained Portfolio Selection Problems

Constructing a portfolio of investments is one of the most significant financial decisions facing individuals and institutions, modern portfolio theory is based on a rational investor choosing the proportions of assets in a portfolio so as to minimize risk and maximize the expected return. In this paper, the constrained portfolio selection problem is studied and a heuristic algorithm based on the particle swarm optimization (PSO) is applied to solve this problem. At first, considering of some complex realistic constrains a new portfolio selection model is formulated. In addition, PSO algorithm is given to solve this new model because traditional optimization algorithms fail to work efficiently. Finally, a numerical example of a portfolio selection problem is given to illustrate our proposed effective means