Designing and explaining a portfolio optimization model using the cuckoo optimization algorithm

Choosing the right portfolio is a crucial goal for investors. Two key factors to consider when selecting a portfolio are return and portfolio risk. This problem can be written as a mathematical programming equation and can be solved quickly. For instance, some investors choose stocks based on past performance, while others consider factors like liquidity when making their selections. Additionally, fundamental and technical analysis are often used in stock and portfolio selection. However, the strategies and methods used to select stocks and portfolios can vary depending on the current market conditions and the investor's level of knowledge. This article focuses on designing and explaining a portfolio optimization model using the cuckoo optimization algorithm. Results show that the best value of the utility function increases as the number of iterations increases. The growth value of the best value of the utility function is higher in the initial iterations and gradually decreases until it reaches zero, indicating that the algorithm has converged to the optimal solution. This research fills a gap in the study of investment portfolio optimization using nested optimization models. Additionally, the study finds that shares selected from industries with better performance make up a higher proportion of the portfolio.

Keywords:

portfolio optimisation , cuckoo optimisation algorithm , stock selection , Investors