Statistical Methods in Finance 2022

June 28 to July 2, 2022


Replicating the Performance of a Portfolio of Stocks Using Minimum Dominating Set

By Subhojit Biswas
Texas A&M University

Finding the exact minimum dominating sets (MDS) is one of the well-known NP-hard problems of graph theory. Here, we determine the MDS of a given portfolio of a large number of stocks based on some associative measures (such as correlation). Then, the portfolio formed by MDS is compared with the original portfolio of stocks. It is challenging to find an optimal solution to the NP-hard problem. So, we devised a greedy algorithm, a local search algorithm, and a meta-heuristics algorithm to find the MDS. Finally, we used six portfolio instances to provide the computational results.