Volume 15, Issue 3 , November 2011, , Pages 105-128
Abstract
Mean-Semivariance Portfolio Optimization Using Harmony Search Method
Reza Raei1, Shapoor Mohammadi2, Hedayat Alibeiki3
1- Associate Professor, Department of Management, Faculty of Management, University of Tehran, Tehran, Iran
2- Assistant Professor, Department of Management, Faculty of Management, ...
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Mean-Semivariance Portfolio Optimization Using Harmony Search Method
Reza Raei1, Shapoor Mohammadi2, Hedayat Alibeiki3
1- Associate Professor, Department of Management, Faculty of Management, University of Tehran, Tehran, Iran
2- Assistant Professor, Department of Management, Faculty of Management, University of Tehran, Tehran, Iran
3- M.S. student, Department of Management, Faculty of Management, University of Tehran, Tehran, Iran
Received: 29 /11/2010 Accept: 9/3/2011
Academics and practitioners usually optimize portfolios using the mean-variance approach than the mean-semivariance approach. Due to the fact that semivariance is often considered a more plausible measure of risk than variance, in this paper, semivariance was measured as the main indicator of risk. The portfolio optimization problem is a mixed quadratic and integer programming problem for which efficient algorithms do not exist. This study presents a heuristic approach to portfolio optimization problem using Harmony Search Algorithm (HS). The HS method is inspired by the underlying principles of the musicians’ improvisation of the harmony. The test data set is the daily prices of 20 companies from March 2006 to September 2008 from the TEPIX in Iran. The results showed that Harmony search approach is successful in constrained portfolio optimization to find the optimum solutions at all levels of risk and return.
