A constrained consensus based optimization algorithm and its application to finance

Abstract

In this paper, we propose a predictor-corrector type Consensus Based Optimization(CBO) algorithm on a convex feasible set. Our proposed algorithm generalizes the CBO algorithm in [11] to tackle a constrained optimization problem for the global minima of the non-convex function defined on a convex domain. As a practical application of the proposed algorithm, we study the portfolio optimization problem in finance. In this application, we introduce an objective function to choose the optimal weight on each asset in an asset-bundle, which yields the maximal expected returns given a certain level of risks. Simulation results show that our proposed predictor-corrector type model is successful in finding the optimal value.