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

Abstract

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.