Foreign exchange forecasting and portfolio optimization strategy based on hybrid-molecular differential evolution algorithms

Xuecong Zhang; Chen Zhong; Laith Abualigah

doi:10.1007/s00500-022-07526-6

Foreign exchange forecasting and portfolio optimization strategy based on hybrid-molecular differential evolution algorithms

Soft comput. 2023;27(7):3921-3939. doi: 10.1007/s00500-022-07526-6. Epub 2022 Nov 8.

Authors

Xuecong Zhang¹, Chen Zhong¹, Laith Abualigah^{2

3}

Affiliations

¹ School of Business Administration, South China University of Technology, Guangzhou, Guangdong China.
² Hourani Center for Applied Scientific Research, Al-Ahliyya Amman University, Amman, 19328 Jordan.
³ Faculty of Information Technology, Middle East University, Amman, 11831 Jordan.

Abstract

At present, the COVID-19 epidemic is still spreading at home and abroad, and the foreign exchange market is highly volatile. From financial institutions to individual investors, foreign exchange asset allocation has become important contents worthy of attention. However, most intelligent optimization algorithms (hereinafter IOAS) adopt the existing data and ignore the forecasted one in the foreign exchange portfolio allocation, which will result in a huge difference between portfolio allocation and actual demand; at the same time, many IOAS are less adaptable and have lower optimization ability in portfolio problems. To solve the aforementioned problems, this paper first proposed a DETS based on hybrid tabu search and differential evolution algorithms (DEAs), which has excellent optimization ability. Subsequently, the DETS algorithm was applied to support vector machine (SVM) model. Experiments show that, compared with other algorithms, the MAE and RMSE obtained by using DETS optimization parameters are reduced by at least 3.79 and 1.47%, while the CTR is improved by at least 2.19%. Then combined with the DETS algorithm and Pareto sorting theory, an algorithm suitable for multi-objective optimization was further proposed, named NSDE-TS. Finally, by applying NSDE-TS algorithm, the optimal foreign exchange portfolio is acquired. The empirical analysis shows that the Pareto front obtained by this algorithm is better than that of NSGA-II. Since the lower the uniformity index and convergence index, the stronger the optimization performance of the corresponding algorithm, compared with NSGA-II, its uniformity and convergence index decreased by 15.7 and 39.6%.

Keywords: Differential evolution algorithm; Exchange rate forecast; Foreign exchange portfolio; Pareto principle; Tabu search algorithm.

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