Application of the Cuckoo Optimization Algorithm for Enhanced Financial Portfolio Optimization

Over the years, numerous methods have been developed to address financial portfolio optimization problems, focusing on maximizing returns while minimizing risks. Recently, heuristic approaches have gained traction as viable alternatives to traditional methods. This study introduces the Cuckoo Optimization Algorithm (COA), a novel heuristic technique inspired by the brood parasitism of some cuckoo species. The COA is applied to solve complex financial portfolio optimization problems and is benchmarked against established algorithms such as the genetic algorithm and ant colony optimization. Empirical results from a five-stock application example demonstrate that the COA provides superior optimization solutions in terms of both efficiency and effectiveness. The study highlights the potential of COA as a robust tool for financial analysts seeking innovative approaches to portfolio management.