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Simulated annealing algorithm for optimal capital growth

Author

Listed:
  • Luo, Yong
  • Zhu, Bo
  • Tang, Yong

Abstract

We investigate the problem of dynamic optimal capital growth of a portfolio. A general framework that one strives to maximize the expected logarithm utility of long term growth rate was developed. Exact optimization algorithms run into difficulties in this framework and this motivates the investigation of applying simulated annealing optimized algorithm to optimize the capital growth of a given portfolio. Empirical results with real financial data indicate that the approach is inspiring for capital growth portfolio.

Suggested Citation

  • Luo, Yong & Zhu, Bo & Tang, Yong, 2014. "Simulated annealing algorithm for optimal capital growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 408(C), pages 10-18.
  • Handle: RePEc:eee:phsmap:v:408:y:2014:i:c:p:10-18
    DOI: 10.1016/j.physa.2014.04.020
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    References listed on IDEAS

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    1. E. W. Piotrowski & M. Schroeder, 2007. "Kelly criterion revisited: optimal bets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 57(2), pages 201-203, May.
    2. Henry Allen Latane, 1959. "Criteria for Choice Among Risky Ventures," Journal of Political Economy, University of Chicago Press, vol. 67, pages 144-144.
    3. Crama, Y. & Schyns, M., 2003. "Simulated annealing for complex portfolio selection problems," European Journal of Operational Research, Elsevier, vol. 150(3), pages 546-571, November.
    4. Thomas M. Cover, 1991. "Universal Portfolios," Mathematical Finance, Wiley Blackwell, vol. 1(1), pages 1-29.
    5. Edward W. Piotrowski & Malgorzata Schroeder, "undated". "Kelly Criterion Revisited: Optimal Bets," Departmental Working Papers 24, University of Bialtystok, Department of Theoretical Physics.
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