Stock selection with full-scale optimization and differential evolution

When composing stock portfolios, managers frequently choose among hundreds of stocks. The stocks' risk properties are analyzed with statistical tools, and managers try to combine these to meet the investors' risk profiles. A recently developed tool for performing such optimization is called full-scale optimization (FSO). This methodology is very flexible for investor preferences, but because of computational limitations it has until now been infeasible to use when many stocks are considered. We apply the artificial intelligence technique of differential evolution to solve FSO-type stock selection problems of 97 assets. Differential evolution finds the optimal solutions by self-learning from randomly drawn candidate solutions. We show that this search technique makes large scale problem computationally feasible and that the solutions retrieved are stable. The study also gives further merit to the FSO technique, as it shows that the solutions suit investor risk profiles better than portfolios retrieved from traditional methods.

Optimal image colour extraction by differential evolution

Differential evolution is an optimisation technique that has been successfully employed in various applications. In this paper, we apply differential evolution to the problem of extracting the optimal colours of a colour map for quantised images. The choice of entries in the colour map is crucial for the resulting image quality as it forms a look-up table that is used for all pixels in the image. We show that differential evolution can be effectively employed as a method for deriving the entries in the map. In order to optimise the image quality, our differential evolution approach is combined with a local search method that is guaranteed to find the local optimal colour map. This hybrid approach is shown to outperform various commonly used colour quantisation algorithms on a set of standard images. Copyright © 2010 Inderscience Enterprises Ltd.

Liquidity and portfolio optimisation

This thesis presents research within empirical financial economics with focus on liquidity and portfolio optimisation in the stock market. The discussion on liquidity is focused on measurement issues, including TAQ data processing and measurement of systematic liquidity factors (FSO). Furthermore, a framework for treatment of the two topics in combination is provided. The liquidity part of the thesis gives a conceptual background to liquidity and discusses several different approaches to liquidity measurement. It contributes to liquidity measurement by providing detailed guidelines on the data processing needed for applying TAQ data to liquidity research. The main focus, however, is the derivation of systematic liquidity factors. The principal component approach to systematic liquidity measurement is refined by the introduction of moving and expanding estimation windows, allowing for time-varying liquidity co-variances between stocks. Under several liability specifications, this improves the ability to explain stock liquidity and returns, as compared to static window PCA and market average approximations of systematic liquidity. The highest ability to explain stock returns is obtained when using inventory cost as a liquidity measure and a moving window PCA as the systematic liquidity derivation technique. Systematic factors of this setting also have a strong ability in explaining a cross-sectional liquidity variation. Portfolio optimisation in the FSO framework is tested in two empirical studies. These contribute to the assessment of FSO by expanding the applicability to stock indexes and individual stocks, by considering a wide selection of utility function specifications, and by showing explicitly how the full-scale optimum can be identified using either grid search or the heuristic search algorithm of differential evolution. The studies show that relative to mean-variance portfolios, FSO performs well in these settings and that the computational expense can be mitigated dramatically by application of differential evolution.

Parallel Problem Solving from Nature – PPSN XIV:14th International Conference, Edinburgh, UK, September 17-21, 2016, Proceedings

This book constitutes the refereed proceedings of the 14th International Conference on Parallel Problem Solving from Nature, PPSN 2016, held in Edinburgh, UK, in September 2016. The total of 93 revised full papers were carefully reviewed and selected from 224 submissions. The meeting began with four workshops which offered an ideal opportunity to explore specific topics in intelligent transportation Workshop, landscape-aware heuristic search, natural computing in scheduling and timetabling, and advances in multi-modal optimization. PPSN XIV also included sixteen free tutorials to give us all the opportunity to learn about new aspects: gray box optimization in theory; theory of evolutionary computation; graph-based and cartesian genetic programming; theory of parallel evolutionary algorithms; promoting diversity in evolutionary optimization: why and how; evolutionary multi-objective optimization; intelligent systems for smart cities; advances on multi-modal optimization; evolutionary computation in cryptography; evolutionary robotics - a practical guide to experiment with real hardware; evolutionary algorithms and hyper-heuristics; a bridge between optimization over manifolds and evolutionary computation; implementing evolutionary algorithms in the cloud; the attainment function approach to performance evaluation in EMO; runtime analysis of evolutionary algorithms: basic introduction; meta-model assisted (evolutionary) optimization. The papers are organized in topical sections on adaption, self-adaption and parameter tuning; differential evolution and swarm intelligence; dynamic, uncertain and constrained environments; genetic programming; multi-objective, many-objective and multi-level optimization; parallel algorithms and hardware issues; real-word applications and modeling; theory; diversity and landscape analysis.

Variational mean-field algorithm for efficient inference in large systems of stochastic differential equations

This work introduces a Gaussian variational mean-field approximation for inference in dynamical systems which can be modeled by ordinary stochastic differential equations. This new approach allows one to express the variational free energy as a functional of the marginal moments of the approximating Gaussian process. A restriction of the moment equations to piecewise polynomial functions, over time, dramatically reduces the complexity of approximate inference for stochastic differential equation models and makes it comparable to that of discrete time hidden Markov models. The algorithm is demonstrated on state and parameter estimation for nonlinear problems with up to 1000 dimensional state vectors and compares the results empirically with various well-known inference methodologies.

Magnification factors for the GTM algorithm

The Generative Topographic Mapping (GTM) algorithm of Bishop et al. (1997) has been introduced as a principled alternative to the Self-Organizing Map (SOM). As well as avoiding a number of deficiencies in the SOM, the GTM algorithm has the key property that the smoothness properties of the model are decoupled from the reference vectors, and are described by a continuous mapping from a lower-dimensional latent space into the data space. Magnification factors, which are approximated by the difference between code-book vectors in SOMs, can therefore be evaluated for the GTM model as continuous functions of the latent variables using the techniques of differential geometry. They play an important role in data visualization by highlighting the boundaries between data clusters, and are illustrated here for both a toy data set, and a problem involving the identification of crab species from morphological data.

Estimating parameters in stochastic systems:a variational Bayesian approach

This work is concerned with approximate inference in dynamical systems, from a variational Bayesian perspective. When modelling real world dynamical systems, stochastic differential equations appear as a natural choice, mainly because of their ability to model the noise of the system by adding a variation of some stochastic process to the deterministic dynamics. Hence, inference in such processes has drawn much attention. Here a new extended framework is derived that is based on a local polynomial approximation of a recently proposed variational Bayesian algorithm. The paper begins by showing that the new extension of this variational algorithm can be used for state estimation (smoothing) and converges to the original algorithm. However, the main focus is on estimating the (hyper-) parameters of these systems (i.e. drift parameters and diffusion coefficients). The new approach is validated on a range of different systems which vary in dimensionality and non-linearity. These are the Ornstein–Uhlenbeck process, the exact likelihood of which can be computed analytically, the univariate and highly non-linear, stochastic double well and the multivariate chaotic stochastic Lorenz ’63 (3D model). As a special case the algorithm is also applied to the 40 dimensional stochastic Lorenz ’96 system. In our investigation we compare this new approach with a variety of other well known methods, such as the hybrid Monte Carlo, dual unscented Kalman filter, full weak-constraint 4D-Var algorithm and analyse empirically their asymptotic behaviour as a function of observation density or length of time window increases. In particular we show that we are able to estimate parameters in both the drift (deterministic) and the diffusion (stochastic) part of the model evolution equations using our new methods.

Applications of differential geometry to high spin field theories

The main aim of this thesis is to investigate the application of methods of differential geometry to the constraint analysis of relativistic high spin field theories. As a starting point the coordinate dependent descriptions of the Lagrangian and Dirac-Bergmann constraint algorithms are reviewed for general second order systems. These two algorithms are then respectively employed to analyse the constraint structure of the massive spin-1 Proca field from the Lagrangian and Hamiltonian viewpoints. As an example of a coupled field theoretic system the constraint analysis of the massive Rarita-Schwinger spin-3/2 field coupled to an external electromagnetic field is then reviewed in terms of the coordinate dependent Dirac-Bergmann algorithm for first order systems. The standard Velo-Zwanziger and Johnson-Sudarshan inconsistencies that this coupled system seemingly suffers from are then discussed in light of this full constraint analysis and it is found that both these pathologies degenerate to a field-induced loss of degrees of freedom. A description of the geometrical version of the Dirac-Bergmann algorithm developed by Gotay, Nester and Hinds begins the geometrical examination of high spin field theories. This geometric constraint algorithm is then applied to the free Proca field and to two Proca field couplings; the first of which is the minimal coupling to an external electromagnetic field whilst the second is the coupling to an external symmetric tensor field. The onset of acausality in this latter coupled case is then considered in relation to the geometric constraint algorithm.

Evolution of competing strategies in a threshold model for task allocation

A nature inspired decentralised multi-agent algorithm is proposed to solve a problem of distributed task allocation in which cities produce and store batches of different mail types. Agents must collect and process the mail batches, without global knowledge of their environment or communication between agents. The problem is constrained so that agents are penalised for switching mail types. When an agent process a mail batch of different type to the previous one, it must undergo a change-over, with repeated change-overs rendering the agent inactive. The efficiency (average amount of mail retrieved), and the flexibility (ability of the agents to react to changes in the environment) are investigated both in static and dynamic environments and with respect to sudden changes. New rules for mail selection and specialisation are proposed and are shown to exhibit improved efficiency and flexibility compared to existing ones. We employ a evolutionary algorithm which allows the various rules to evolve and compete. Apart from obtaining optimised parameters for the various rules for any environment, we also observe extinction and speciation.

Demonstrating doubly-differential quadrature phase shift keying in the optical domain

We report for the first time the experimental demonstration of doubly differential quadrature phase shift keying (DDQPSK) using optical coherent detection. This method is more robust against high frequency offsets (FO) than conventional single differential quadrature phase shift keying (SDQPSK) with offset compensation. DDQPSK is shown to be able to compensate large FOs (up to the baud rate) and has lower computational requirements than other FO compensation methods. DDQPSK is a simple algorithm to implement in a real-time decoder for optical burst switched network scenarios. Simulation results are also provided, which show good agreement with the experimental results for both SDQPSK and DDQPSK transmissions. © 1989-2012 IEEE.

Complexity and chirality indices for molecular informatics::differential geometry approach

Novel molecular complexity measures are designed based on the quantum molecular kinematics. The Hamiltonian matrix constructed in a quasi-topological approximation describes the temporal evolution of the modelled electronic system and determined the time derivatives for the dynamic quantities. This allows to define the average quantum kinematic characteristics closely related to the curvatures of the electron paths, particularly, the torsion reflecting the chirality of the dynamic system. A special attention has been given to the computational scheme for this chirality measure. The calculations on realistic molecular systems demonstrate reasonable behaviour of the proposed molecular complexity indices.

Evolution of lace knitting stitch patterns by genetic programming

In this paper we study the generation of lace knitting stitch patterns by using genetic programming. We devise a genetic representation of knitting charts that accurately reflects their usage for hand knitting the pattern. We apply a basic evolutionary algorithm for generating the patterns, where the key of success is evaluation. We propose automatic evaluation of the patterns, without interaction with the user. We present some patterns generated by the method and then discuss further possibilities for bringing automatic evaluation closer to human evaluation. Copyright 2007 ACM.

The evolution of learning systems:to Bayes or not to be

Bayesian algorithms pose a limit to the performance learning algorithms can achieve. Natural selection should guide the evolution of information processing systems towards those limits. What can we learn from this evolution and what properties do the intermediate stages have? While this question is too general to permit any answer, progress can be made by restricting the class of information processing systems under study. We present analytical and numerical results for the evolution of on-line algorithms for learning from examples for neural network classifiers, which might include or not a hidden layer. The analytical results are obtained by solving a variational problem to determine the learning algorithm that leads to maximum generalization ability. Simulations using evolutionary programming, for programs that implement learning algorithms, confirm and expand the results. The principal result is not just that the evolution is towards a Bayesian limit. Indeed it is essentially reached. In addition we find that evolution is driven by the discovery of useful structures or combinations of variables and operators. In different runs the temporal order of the discovery of such combinations is unique. The main result is that combinations that signal the surprise brought by an example arise always before combinations that serve to gauge the performance of the learning algorithm. This latter structures can be used to implement annealing schedules. The temporal ordering can be understood analytically as well by doing the functional optimization in restricted functional spaces. We also show that there is data suggesting that the appearance of these traits also follows the same temporal ordering in biological systems. © 2006 American Institute of Physics.