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Computing the Mean-Variance-Sustainability Nondominated Surface by ev-MOGA

Author

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  • A. Garcia-Bernabeu
  • J. V. Salcedo
  • A. Hilario
  • D. Pla-Santamaria
  • Juan M. Herrero

Abstract

Despite the widespread use of the classical bicriteria Markowitz mean-variance framework, a broad consensus is emerging on the need to include more criteria for complex portfolio selection problems. Sustainable investing, also called socially responsible investment, is becoming a mainstream investment practice. In recent years, some scholars have attempted to include sustainability as a third criterion to better reflect the individual preferences of those ethical or green investors who are willing to combine strong financial performance with social benefits. For this purpose, new computational methods for optimizing this complex multiobjective problem are needed. Multiobjective evolutionary algorithms (MOEAs) have been recently used for portfolio selection, thus extending the mean-variance methodology to obtain a mean-variance-sustainability nondominated surface. In this paper, we apply a recent multiobjective genetic algorithm based on the concept of - dominance called ev-MOGA. This algorithm tries to ensure convergence towards the Pareto set in a smart distributed manner with limited memory resources. It also adjusts the limits of the Pareto front dynamically and prevents solutions belonging to the ends of the front from being lost. Moreover, the individual preferences of socially responsible investors could be visualised using a novel tool, known as level diagrams, which helps investors better understand the range of values attainable and the tradeoff between return, risk, and sustainability.

Suggested Citation

  • A. Garcia-Bernabeu & J. V. Salcedo & A. Hilario & D. Pla-Santamaria & Juan M. Herrero, 2019. "Computing the Mean-Variance-Sustainability Nondominated Surface by ev-MOGA," Complexity, Hindawi, vol. 2019, pages 1-12, December.
  • Handle: RePEc:hin:complx:6095712
    DOI: 10.1155/2019/6095712
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    1. Steuer, Ralph E. & Utz, Sebastian, 2023. "Non-contour efficient fronts for identifying most preferred portfolios in sustainability investing," European Journal of Operational Research, Elsevier, vol. 306(2), pages 742-753.
    2. Georgios Mamanis, 2021. "Analyzing the Performance of a Two-Tail-Measures-Utility Multi-objective Portfolio Optimization Model," SN Operations Research Forum, Springer, vol. 2(4), pages 1-18, December.

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