A Multi-Objective Genetic Algorithm for Optimal Portfolio Problems

This paper concerns with modeling and design of an algorithm for the portfolio selection problems with fixed transaction costs and minimum transaction lots. A mean-variance model for the portfolio selection problem is proposed, and the model is formulated as a non-smooth and nonlinear integer programming problem with multiple objective functions. As it has been proven that finding a feasible solution to the problem only is already NP-hard, based on NSGA-II and genetic algorithm for numerical optimization of constrained problems (Genocop), a multi-objective genetic algorithm (MOGA) is designed to solve the model. Its features comprise integer encoding and corresponding operators, and special treatment of constraints conditions. It is illustrated via a numerical example that the genetic algorithm can efficiently solve portfolio selection models proposed in this paper. This approach offers promise for the portfolio problems in practice.