Metaheuristic optimization of Risk Budgeted global asset allocation portfolios

A global asset allocation portfolio is an assortment of assets invested in equities, currencies and commodities of global markets. The problem of portfolio optimization with regard to a portfolio such as this involves obtaining its maximal Sharpe ratio which is a rewards-to-risk variability ratio. However, the problem turns complex when Risk Budgeting and other investor preferential constraints are considered which renders it difficult for direct solving by analytical methods. This paper discusses an efficient solution to the problem model using a Metaheuristic technique, viz., Differential Evolution with Hall of Fame (DE-HOF), which is a refined version of the standard Differential Evolution (rand/1/bin) technique. The performance of the strategy has been studied by comparing the results obtained by DE-HOF with an alternate Metaheuristic strategy belonging to a different genre. Its convergence characteristics have also been analyzed using objective function convergence and P-Measures which is a measure of population dynamics.