Applying Particle Swarm Optimization: New Solutions and Cases for Optimized Portfolios

Abstract

In portfolio management, it is aimed to create a portfolio that gives the best combination of risk and return among the assets in the market. There are different optimization techniques for creating an optimum portfolio depending on the risk and return variable. Particle swarm optimization (PSO) method is one of the important and useful techniques used in portfolio optimization in finance. In this chapter, Markowitz mean-variance model, which is the main model of modern portfolio theory, is explained, and mathematical representations are given. The subject is supported with mathematical notations by mentioning concepts such as portfolio risk and return, efficient frontier, utility theory, asset allocation, indifference curves, Sharpe ratio, and coefficient of variation.