A Genetic Relation Algorithm and Its Application to the Portfolio Optimization

The survey of the relevant literature showed that there have been many studies for portfolio optimization problem and that the number of studies which have investigated the optimum portfolio using evolutionary computation is quite high. But almost none of these studies deals with genetic relation algorithm (GRA). This study presents an approach to large-scale portfolio optimization problem using GRA with a new operator, called guided mutation. In order to pick up the most efficient portfolio, GRA considers the correlation coefficient between stock brands as strength, which indicates the relation between nodes in each individual of GRA. Guided mutation generates offspring according to the average value of correlation coefficients in each individual. A genetic relation algorithm with guided mutation (GRA/G) for the portfolio optimization is proposed in this paper. Genetic network programming (GNP), which was proposed in our previous research, is used to validate the performance of the portfolio generated with GRA/G. The results show that GRA/G approach is successful in portfolio optimization.