Continuous-time mean–variance portfolio selection with value-at-risk and no-shorting constraints

An investment problem is considered with dynamic mean–variance(M-V) portfolio criterion under discontinuous prices which follow jump–diffusion processes according to the actual prices of stocks and the normality and stability of the financial market. The short-selling of stocks is prohibited in this mathematical model. Then, the corresponding stochastic Hamilton–Jacobi–Bellman(HJB) equation of the problem is presented and the solution of the stochastic HJB equation based on the theory of stochastic LQ control and viscosity solution is obtained. The efficient frontier and optimal strategies of the original dynamic M-V portfolio selection problem are also provided. And then, the effects on efficient frontier under the value-at-risk constraint are illustrated. Finally, an example illustrating the discontinuous prices based on M-V portfolio selection is presented.     

Numerical solution of continuous-time mean–variance portfolio selection with nonlinear constraints

An investment problem is considered with dynamic mean–variance (M–V) portfolio criterion under discontinuous prices described by jump-diffusion processes. Some investment strategies are restricted in the study. This M–V portfolio with restrictions can lead to a stochastic optimal control model. The corresponding stochastic Hamilton–Jacobi–Bellman equation of the problem with linear and nonlinear constraints is derived. Numerical algorithms are presented for finding the optimal solution in this article. Finally, a computational experiment is to illustrate the proposed methods by comparing with M–V portfolio problem which does not have any constraints.     

Neural network-based mean–variance–skewness model for portfolio selection

In this study, a novel neural network-based mean–variance–skewness model for optimal portfolio selection is proposed integrating different forecasts and trading strategies, as well as investors’ risk preference. Based on the Lagrange multiplier theory in optimization and the radial basis function (RBF) neural network, the model seeks to provide solutions satisfying the trade-off conditions of mean–variance–skewness. The feasibility of the RBF network-based mean–variance–skewness model is verified with a simulation experiment. The experimental results show that, for all examined investor risk preferences and investment assets, the proposed model is a fast and efficient way of solving the trade-off in the mean–variance–skewness portfolio problem. In addition, we also find that the proposed approach can also be used as an alternative tool for evaluating various forecasting models.     

Fuzzy mean–variance–skewness portfolio selection models by interval analysis

In portfolio selection problem, the expected return, risk, liquidity etc. cannot be predicted precisely. The investor generally makes his portfolio decision according to his experience and his economic wisdom. So, deterministic portfolio selection is not a good choice for the investor. In most of the recent works on this problem, fuzzy set theory is widely used to model the problem in uncertain environments. This paper utilizes the concept of interval numbers in fuzzy set theory to extend the classical mean–variance (MV) portfolio selection model into mean–variance–skewness (MVS) model with consideration of transaction cost. In addition, some other criteria like short and long term returns, liquidity, dividends, number of assets in the portfolio and the maximum and minimum allowable capital invested in stocks of any selected company are considered. Three different models have been proposed by defining the future financial market optimistically, pessimistically and in the combined form to model the fuzzy MVS portfolio selection problem. In order to solve the models, fuzzy simulation (FS) and elitist genetic algorithm (EGA) are integrated to produce a more powerful and effective hybrid intelligence algorithm (HIA). Finally, our approaches are tested on a set of stock data from Bombay Stock Exchange (BSE).     

Optimal mean–variance control for discrete-time linear systems with Markovian jumps and multiplicative noises

In this paper, we consider the stochastic optimal control problem of discrete-time linear systems subject to Markov jumps and multiplicative noises under two criteria. The first one is an unconstrained mean–variance trade-off performance criterion along the time, and the second one is a minimum variance criterion along the time with constraints on the expected output. We present explicit conditions for the existence of an optimal control strategy for the problems, generalizing previous results in the literature. We conclude the paper by presenting a numerical example of a multi-period portfolio selection problem with regime switching in which it is desired to minimize the sum of the variances of the portfolio along the time under the restriction of keeping the expected value of the portfolio greater than some minimum values specified by the investor.     

Mean–variance portfolio selection based on a generalized BNS stochastic volatility model

We study a mean–variance portfolio selection problem via optimal feedback control based on a generalized Barndorff-Nielsen and Shephard stochastic volatility model, where an investor trades in a generalized Black–Scholes market. The random coefficients of the market are driven by non-Gaussian Ornstein–Uhlenbeck processes that are independent of the underlying multi-dimensional Brownian motion. Our contribution is to explicitly compute and justify optimal portfolios over an admissible set that is large enough to cover some important classes of strategies such as the class of feedback controls of Markov type. Concretely, the mean–variance efficient portfolios and efficient frontiers are explicitly calculated through the method of generalized linear-quadratic control and explicitly constructed solutions to three integro-partial differential equations under a quite mild condition that only requires one stock whose appreciation-rate process is different from the interest-rate process. Related minimum variance issue is also addressed via our main results.     

Stability and stabilisation of Itô stochastic systems with piecewise homogeneous Markov jumps

This paper focuses on the problem of stability and stabilisation for continuous-time Itô stochastic Markovian jump linear systems with time-varying transition rates. The time-varying property of the transition rates is considered to be finite piecewise homogeneous. Firstly, the stability conditions of the piecewise homogeneous Itô stochastic Markovian jump linear systems are given in terms of linear matrix inequalities (LMIs). Especially, a novel stability criterion is developed for the considered systems by the existence of the unique positive-definite solution of the corresponding coupled Lyapunov matrix equations. Secondly, two state-feedback controllers are designed via LMIs to stabilise the systems. Finally, a practical example is provided to illustrate the effectiveness of the presented theoretical results.     

The mean–variance cardinality constrained portfolio optimization problem: An experimental evaluation of five multiobjective evolutionary algorithms

This paper compares the effectiveness of five state-of-the-art multiobjective evolutionary algorithms (MOEAs) together with a steady state evolutionary algorithm on the mean–variance cardinality constrained portfolio optimization problem (MVCCPO). The main computational challenges of the model are due to the presence of a nonlinear objective function and the discrete constraints. The MOEAs considered are the Niched Pareto genetic algorithm 2 (NPGA2), non-dominated sorting genetic algorithm II (NSGA-II), Pareto envelope-based selection algorithm (PESA), strength Pareto evolutionary algorithm 2 (SPEA2), and e-multiobjective evolutionary algorithm (e-MOEA). The computational comparison was performed using formal metrics proposed by the evolutionary multiobjective optimization community on publicly available data sets which contain up to 2196 assets.     

An integrated multi-objective Markowitz–DEA cross-efficiency model with fuzzy returns for portfolio selection problem

In this paper, a novel multi objective model is proposed for portfolio selection. The proposed model incorporates the DEA cross-efficiency into Markowitz mean–variance model and considers return, risk and efficiency of the portfolio. Also, in order to take uncertainty in proposed model, the asset returns are considered as trapezoidal fuzzy numbers. Due to the computational complication of the proposed model, the second version of non-dominated sorting genetic algorithm (NSGA-II) is applied. To illustrate the performance of our model, the model is implemented for 52 firms listed in stock exchange market of Iran and the results are analyzed. The results show that the proposed model is suitable in compared with Markowitz and DEA models due to considering return, risk and efficiency, simultaneously.     

A novel group decision model based on mean–variance–skewness concepts and interval-valued fuzzy sets for a selection problem of the sustainable warehouse location under uncertainty

Recently, sustainable warehouse location has been regarded as one of the most critical and significant decision problems for long-term planning in the supply chain. This strategic decision can be effected by different quantitative and qualitative evaluation criteria via three dimensions of the sustainability. Main theme of the paper is to select the most optimal location decision from a number of potential sustainable warehouse candidates. For this purpose, this paper presents a novel multi-criteria decision-making model by a group of supply chain experts or decision makers with interval-valued fuzzy setting and asymmetric uncertainty information. Concepts of mean, variance and skewness are introduced into the proposed group decision model, and their mathematical relations are defined based on a fuzzy possibilistic statistical approach. Then, new relations in this model are presented for obtaining ideal solutions under uncertainty with two high and low values of the possibilistic mean and possibilistic standard deviation, along with the possibilistic cube root of skewness. In addition, novel separation measures and new fuzzy ranking index of hybridized relative closeness coefficients are presented to provide final preference order of warehouse location candidates under uncertain conditions. Finally, a sustainable warehouse location selection problem in a pharmaceutical company is presented and solved by the proposed group decision model to demonstrate its applicability and suitability.

     

Optimal portfolio selection in a Lévy market with uncontrolled cash flow and only risky assets

This article considers an investor who has an exogenous cash flow evolving according to a Lévy process and invests in a financial market consisting of only risky assets, whose prices are governed by exponential Lévy processes. Two continuous-time portfolio selection problems are studied for the investor. One is a benchmark problem, and the other is a mean-variance problem. The first problem is solved by adopting the stochastic dynamic programming approach, and the obtained results are extended to the second problem by employing the duality theory. Closed-form solutions of these two problems are derived. Some existing results are found to be special cases of our results.     

Wave–current interactions over bottom with appreciable variations in both space and time

In shallow water conditions, current and wave propagation cannot be simulated separately and then superposed linearly. In these conditions, in fact, the fluid dynamics of the wave and current motions and, as a consequence, the responses of the movable bed are significantly different from those expected for a linear superposition of a current with a sinusoidal wave. Thus, wave nonlinearity and the wave–current interaction effects become important factors that need to be considered. A model should be also able to reproduce the fluid dynamics under shallow water conditions over significant slopes and time-bed-level changes. This paper presents a 1DH mathematical formulation of a hydrodynamic model and its numerical solution. The model is able to reproduce all characteristic shallow water phenomena, including: (i) wave–wave and wave–current interaction effects; (ii) important ratios between the current and wave velocities; (iii) significant bed slopes and sudden time-bed-level changes, and (iv) friction stresses at the bottom and at the free surface. Different orders of mathematical approximations and appropriate application examples are also presented.     

Passivity analysis for uncertain BAM neural networks with time delays and reaction–diffusions

This article deals with the problem of passivity analysis for delayed reaction–diffusion bidirectional associative memory (BAM) neural networks with weight uncertainties. By using a new integral inequality, we first present a passivity condition for the nominal networks, and then extend the result to the case with linear fractional weight uncertainties. The proposed conditions are expressed in terms of linear matrix inequalities, and thus can be checked easily. Examples are provided to demonstrate the effectiveness of the proposed results.     

Surrogate relaxation of a fuzzy multidimensional 0–1 knapsack model by surrogate constraint normalization rules and a methodology for multi-attribute project portfolio selection

In this paper, a multidimensional 0–1 knapsack model with fuzzy parameters is defuzzified using triangular norm (t-norm) and t-conorm fuzzy relations. In the first part of the paper, the surrogate relaxation models of the defuzzified models are developed, and the use of surrogate constraint normalization rules is proposed as the surrogate multipliers. A methodology is proposed to evaluate some surrogate constraint normalization rules proposed in the literature as well as one rule proposed in this paper. Three distance metrics are used to find the distance of fuzzy objective function from the surrogate models to the distance of fuzzy objective function from the original models. A numerical experiment shows that the rule proposed in this paper dominates the other rules considered in this paper for three distance metrics given the whole assumptions. In the second part of the paper, a methodology is proposed for multi-attribute project portfolio selection, and optimal solutions from the original defuzzified models as well as near-optimal solutions from their surrogate relaxation models are considered as alternatives. The aggregation of evaluation results is managed using a simple yet effective method so-called fuzzy Simple Additive Weighting (SAW) method. Then, the methodology is applied to a hypothetical construction project portfolio selection problem with multiple attributes.     

An ACO hybrid metaheuristic for close–open vehicle routing problems with time windows and fuzzy constraints

The close–open vehicle routing problem is a realistic variant of the “classical” vehicle routing problem where the routes can be opened and closed, i.e. all the vehicles are not required to return to the depot after completing their service. This variant is a planning model that is a standard practice in business nowadays. Companies are contracting their deliveries to other companies that hire vehicles, and payment is made based on the distance covered by the vehicles. Available information on parameters in real world situations is also imprecise, and must be included in the optimization model and method. The aims of this paper are to formulate a model of this novel variant with time windows and imprecise constraints and to propose a fuzzy optimization approach and a hybrid metaheuristic for its solutions. The full proposal is applied to a real route planning problem with outsourcing, obtaining promising practical results. Customer demands and travel times are imprecise, thus capacity and time windows constraints are considered flexible and modelled as fuzzy constraints.     

Clustering MIT–BIH arrhythmias with Ant Colony Optimization using time domain and PCA compressed wavelet coefficients

In this paper, Ant Colony Optimization (ACO) based clustering analysis of ECG arrhythmias taken from the MIT–BIH Arrhythmia Database is proposed. Both time domain and discrete wavelet transform (DWT) based frequency domain features are used in the analysis. Since the number of wavelet coefficients are huge amount as compared to the time domain parameters, Principal Component Analysis (PCA) based compression is applied on them in order to decrease their number to the number of time domain features. Then, the reduced numbers of frequency parameters are combined with the time domain features, in order to get the total feature sets. Different types of feature sets are tried and the classification results are compared. These are: time domain feature set, frequency domain feature set and the mixture of them. A neural network algorithm is developed in parallel to verify and measure the ACO classifier's success. Moreover, linear discriminant analysis (LDA) is used to show the effect of clustering on the system's results. The method is tested with MIT–BIH database to classify normal beats and five different critical and having vital importance arrhythmia types. Chosen six classes are normal sinus rhythm, premature ventricular contraction (PVC), atrial premature contraction (APC), right bundle branch block (RBBB), ventricular fusion (F) and fusion (f). Comparison results indicate that the mixture feature set gave a better success for the classification.     

A parallel simulated annealing method for the vehicle routing problem with simultaneous pickup–delivery and time windows

This paper addresses a variant of the vehicle routing problem in which customers require simultaneous pickup and delivery of goods during specific individual time windows (VRPSPDTW). A general mixed integer programming model is employed to minimize the routing cost due to: the cost of vehicles and the travel cost of vehicles. A parallel Simulated Annealing (p-SA) algorithm that includes a Residual Capacity and Radial Surcharge (RCRS) insertion-based heuristic is developed and applied to solve this NP-hard optimization problem. Computational results are reported for 65 test problems from Wang and Chen’s benchmark and compared with the results from a Genetic Algorithm (GA) that minimizes the number of vehicles (NV) as the primary objective. Experimental results demonstrate the effectiveness of the p-SA algorithm, which is able to achieve the same objective response as 100% of the Wang and Chen small-scale benchmarks (number of customers from 10 to 50). For the Wang and Chen medium-scale benchmarks (number of 100 customers), the p-SA algorithm obtains better NV solutions for 12 instances and the same NV solutions for the remaining 44 instances. For the 44 instances with the same NV solutions, a secondary objective, travel distance (TD), the p-SA provides better solutions than the GA for 16 instances, and equal solutions for 7 instances. In addition, solutions are found for 30 large-scale instances, with customers of 200, 400, 600, 800 and 1000, which may serve as a new benchmark for the VRPSPDTW problem.     

Optimal digital controller and observer design for multiple time-delay transfer function matrices with multiple input–output time delays

In this article, we address the optimal digital design methodology for multiple time-delay transfer function matrices with multiple input–output time delays. In our approach, the multiple time-delay analogue transfer function matrix with multiple input–output time delays is minimally realised using a continuous-time state-space model. For deriving an explicit form of the optimal digital controller, the realised continuous-time multiple input–output time-delay system is discretised, and an extended high-order discrete-time state-space model is constructed for discrete-time LQR design. To derive a low-order optimal digital observer for the multiple input–output time-delay system, the multiple time-delay state obtained from the multiple time-delay outputs is discretised. Then, the well-known duality concept is employed to design an optimal digital observer using the low-order discretised multiple input time-delay system together with the newly discretised multiple time-delay state. The proposed approach is restricted to multiple time-delay systems where multiple time delays arise only in the input and output, and not in the state.