The Portfolio Optimization Based on Sharp Performance Ratio

Abstract

In recent years investors evaluate their portfolio using modern portfolio theory developed by Markowitz while in the past they evaluated portfolio types according to the traditional portfolio theory based on simple diversification. In modern portfolio theory, it has been defended that the relationships among financial assets included in the portfolio should be taken into account. In addition, the return and risk of the portfolio can be calculated by the mean-variance model. Investors always expect the maximum return and the minimum risk. Therefore they want to choose the optimum one. In Economics literature there are some measurements to evaluate the performances of the different portfolios. In this study, it is aimed at the portfolio analysis to do for the data of the BIST 30 index. For portfolio optimization, some Artificial Intelligence techniques such as the Genetic Algorithm and Particular Swarm Optimization were used for the data belonging to the year 2018. In these algorithms, different values for the parameters were tried and Sharp Performance Ratio (SPR) was used as a performance criterion. The portfolio found with the maximum SPR has been determined as the optimum portfolio. Finally, the risk and the expected return of the portfolio, the included financial assets and their weights have been obtained. The values of the parameters of the final result are considered as the best.

Keywords

• The portfolio Optimization,Genetic Algorithm,Particular Swarm optimization,Sharp Performance Ratio

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