Open AccessAn Extended Stochastic Goal Mixed Integer Programming for Optimal Portfolio Selection in the Amman Stock Exchange
Author(s) -
Rula Hani AlHalaseh,
Aminul Islam,
Rosni Bakar
Publication year - 2019
Publication title -
international journal of financial research
Language(s) - English
Resource type - Journals
eISSN - 1923-4031
pISSN - 1923-4023
DOI - 10.5430/ijfr.v10n2p36
Subject(s) - portfolio , portfolio optimization , computer science , mathematical optimization , stochastic programming , stock exchange , post modern portfolio theory , modern portfolio theory , stock (firearms) , replicating portfolio , integer programming , dynamic programming , geometric brownian motion , econometrics , operations research , economics , finance , mathematics , engineering , mechanical engineering , knowledge management , innovation diffusion , diffusion process
This paper optimally solves the portfolio selection problem that consists of multi assets in a continuous time period to achieve the optimal trade-off between multi-objectives. In this paper, the Stochastic Goal Mixed Integer programming of Stoyan (2009) is extended. The empirical contributions of this research presented on extending the SGMIP model by adding information as a new factor that selects the portfolio elements. The information element used as a portfolio managing characteristics to see whether it is applicable for different problems. The data was collected on a daily basis for all the parameters of the individual stock. Brownian motion formula was used to predict the stock price in the future time period. SP framework used to capture numerous sources of uncertainty and to formulate the portfolio problem. The main challenge of this model is that it contains additional real-world objective and multi types of financial assets, which form a Mixed Integer Programming (MIP). This large-scale problem solved using Optimising Programming Language (OPL) and decomposition algorithm to improve the memory allocation and CPU time. A fascinating result was obtained from the portfolio algorithm design. The ESGMIP portfolio outperforms the Index portfolio return. Under uncertain environment, the availability of information rationalized the diversity when the dynamic portfolio invested in one financial instrument (stocks), and tend to be diversifiable when invested in more than one financial instrument (stock and bond). This work presents a novel extended SGMIP model to reach an optimal solution.