Reinforcement Learning-Guided NSGA-II Enhanced with Gray Relational Coefficient for Multi-Objective Optimization: Application to NASDAQ Portfolio Optimization

Portfolio optimization under uncertainty is inherently a multi-objective decision problem involving complex interactions among return, risk, market dynamics, and practical investment constraints. Existing reliability based portfolio optimization approaches primarily rely on static optimization frameworks and often fail to capture sequential decision making, tail risk, and market frictions such as transaction costs. To address these limitations, we propose a deep reinforcement learning framework for multi-objective reliability based portfolio optimization (MORP-DRL). The proposed framework jointly optimizes expected return and downside risk using three complementary risk measures: variance, Conditional Value-at-Risk (CVaR), and Entropic Value-at-Risk (EVaR). To model uncertainty and heavy-tailed market behavior, asset returns are represented using GARCH(1,1), Extreme Value Theory, and a t-copula dependence structure, while realistic scenarios are generated through quasi-Monte Carlo simulation. A Proximal Policy Optimization (PPO) based strategy is developed under practical constraints including transaction costs and portfolio bounds, and is benchmarked against NSGA-II. Experiments on ten global equity indices across pre-COVID, COVID, and post-COVID market regimes demonstrate that MORP-DRL achieves competitive risk-return performance, reduced downside risk during periods of market stress, and scalability to high-dimensional portfolio settings.

Constrained multi-objective optimization problems (CMOPs) are of great significance in the context of practical applications, ranging from scientific to engineering domains. Most existing constrained multi-objective evolutionary algorithms (CMOEAs) usually employ fixed operators all the time, which exhibit poor versatility in handling various CMOPs. Therefore, some recent studies have focused on adaptively selecting the best operators for the current population states during the search process. The evolutionary algorithms proposed in these studies learn the value of each operator and recommend the operator with the highest value for the current population, resulting in only a single operator being recommended at each generation, which can potentially lead to local optima and inefficient utilization of function evaluations. To address the dilemma in operator adaptation, this paper proposes a reinforcement learning-based automated operator portfolio approach to learn an allocation scheme of operators at each generation. This approach considers the optimization-related and constraint-related features of the current population as states, the overall improvement in population convergence and diversity as rewards, and different operator portfolios as actions. By utilizing deep neural networks to establish a mapping model between the population states and the expected cumulative rewards, the proposed approach determines the optimal operator portfolio during the evolutionary process. By embedding the proposed approach into existing CMOEAs, a deep reinforcement learning-assisted automated operator portfolio based evolutionary algorithm for solving CMOPs, abbreviated as CMOEA-AOP, is developed. Empirical studies on 33 benchmark problems demonstrate that the proposed algorithm significantly enhances the performance of CMOEAs and exhibits more stable performance across different CMOPs.

Decision-making is posing an increasingly formidable challenge to investors because of the growing number of alternatives available in financial markets. A hot area of research over the past few decades has been portfolio optimization that seeks to determine how much an investor should invest in which asset. Introducing real-world conditions to the optimization model turns the problem into an NP-hard one for whose solution exact methods become inefficient; hence, researchers have turned to evolutionary algorithms to approximate solutions. In this paper, strengthening strategies are presented for multi-objective evolutionary algorithms that can provide a faster convergence rate and extensive search ability in the portfolio optimization problem under the cardinality constraint. To implement those features, a unique solution representation, a novel operator, and new repair mechanisms are introduced for solving the aforementioned problem in which lower and upper limits are set on the number of assets in the portfolio. For this purpose, new mating strategies along with the aforesaid package are implemented in well-known multi-objective evolutionary algorithms to solve the problem. The customized algorithms are subsequently tested against traditional ones using well-known market indices as benchmarks. Results indicate that the proposed strategy not only provides better approximations but also converges faster as well at no loss of performance with an increasing number of assets in the market.