IUP Publications Online
Home About IUP Magazines Journals Books Archives
     
Recommend    |    Subscriber Services    |    Feedback    |     Subscribe Online
 
The IUP Journal of Applied Economics
Allocation of Stocks in a Portfolio Using Antlion Algorithm: Investor’s Perspective
:
:
:
:
:
:
:
:
:
 
 
 
 
 
 

An investment is a commitment of funds made in the expectation of some positive rate of return. A fundamental principle of investments is diversification, where investors diversify their investments into different types of financial assets. The different stocks can be clubbed in one portfolio. The most important investment decision which the investor of a portfolio must make is the portfolio’s asset allocation. Asset allocation refers to the percentage of amount invested in various choices available. This paper presents the design of optimal portfolio using a new stochastic nature inspired computing technique—Antlion Algorithm (ALO). ALO mimics the hunting mechanism of antlions in nature and can be used as an optimization technique to solve various problems in management and engineering. The stocks of top 45 Indian companies listed on Bombay Stock Exchange (BSE) have been selected on the basis of market capitalization. The problem has been modeled as a fitness function which minimizes risk and maximizes the return of the portfolio. The optimal weights indicating the amount of money to be invested in each stock has been calculated using ALO. Two different sets of portfolio have been constructed and optimized. The results obtained using ALO have been compared with those obtained using conventional Genetic Algorithm (GA) and it has been found that ALO outperforms GA for portfolio designing.

 
 
 

TA portfolio consists of clubbing of different stocks together to ensure diversification. The design of a best portfolio that meets the requirements of the investors can be modelled as an optimization problem (Fabozzi et al., 2007). In case of portfolio optimization, the optimal weights of the stocks have to be found in order to meet the satisfaction of the investor, which lies in maximizing return and minimizing risk. Various traditional methods to construct portfolio have been used previously (Markowitz, 1959; Lee and Lerro, 1973; Elton and Gruber, 2001; and Gupta and Aggarwal, 2009). In recent years, various nature inspired optimization techniques are being used to find solution of portfolio optimization problem (Anagnostopoulas and Mamanis, 2011). The nature inspired techniques derive their inspiration from nature and there are various such algorithms in literature, like Genetic Algorithm (GA), Particle Swarm Optimization (PSO), Bacterial Foraging Algorithm (BFO), Ant Colony Optimization (ACO), Firefly Algorithm (FA), Cuckoo Optimization (CO), and Antlion Algorithm (ALO).

 
 
 

Allocation of Stocks in a Portfolio Using Antlion Algorithm: Investor’s Perspective