Portfolio Optimization Using Ant Colony Method a Case Study on Tehran Stock Exchange

Saina Abolmaali and Fraydoon Rahnamay Roodposhti

Portfolio Optimization and selection of the efficient frontier from Mean-Variance Markowitz(1952) model is easily accessible in the conditions with no constraints.However, it cannot be used to fulfil the investors’ needs based on having different constrains such as number of the assets in a portfolio. Since the Markowitz model is not the answer to these investors, there should be other methods to provide the optimal risk and return combination. Therefore, Meta-Heuristic methods have become a highly active area of research in this field. This paper tries to construct portfolios rooted in constrains regarding the number of assets involved in a portfolio having the inspiration of Ant Colony Algorithm; moreover, the study is targeted to find the best efficient frontier for the proposed algorithm. Next, sharp ratio has been employed as the fitness function of the portfolio which tries to optimize portfolio selection by optimizing the sharp ratio. In addition, an efficient frontier for ant colony algorithm has been set and demonstrated that the algorithm functions more efficiently when we confine the number of assets to a precise number.