Strategic Asset Allocation Using Quadratic
Programming With Case Based Reasoning And
Intelligent Agents
Author(s)
E. Falconer, A. Usoro, M. Stansfield & B. Lees
Abstract
There is an abundance of intelligent agent decision support systems (DSS) that
have been used to assist with portfolio management decisions. These systems
have tended to focus on fundamental, technical and trader behaviour analyses
whereas efficient markets hypothesis, as argued by researchers such as
Clarke et al., suggest that effort should rather be spent on strategic asset
allocation. All of the artificial intelligent studies that have been found have
focused on analysis methods which are aimed at identifying investment
opportunities with above average returns. According to Clarke et al, although
giving support to these types of decision is possible with today’s computing
power, to be effective these systems must identify an opportunity before the rest
of the marketplace. There is evidence from the efficient markets hypothesis that
the stockmarket reflects new information so quickly that these types of analysis
technique are ineffective. As an alternative to these methods Markowitz
developed an approach known as mean-variance efficiency analysis which aimed
at allowing an investor to gain a specific level of return for a corresponding
degree of risk. Sharpe introduced an alternative way of implementing meanvariance
efficiency theory by defining stocks and other investments in terms of
asset classes. A literature search has revealed that there has as yet been no
attempt to investigate this potential. This paper therefore aims to fill this gap by
reporting on research that involves the incorporation of quadratic calculations in
an intelligent agent and case based reasoning tool for strategic asset allocation.
This paper provides the results of an evaluation into the effectiveness of
intelligent agents and case based reasoning in dealing with this problem.
Keywords: intelligent agents, quadratic optimization, portfolio management,
asset allocation, case based reasoning.
Keywords
intelligent agents, quadratic optimization, portfolio management,
asset allocation, case based reasoning.
Related Book
Other papers in this volume
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