Project Portfolio Selection via Harmony Search Algorithm and Modern Portfolio Theory

Abstract Since the success of all organizations depends on aligning their projects with strategic plan of theirs, selecting appropriate project portfolio is a key decision in the path to fruitful and thriving organization. Modern portfolio theory (MPT), proposed by Harry Markowitz, attempts to maximize portfolio expected return for a specific amount of risk or equivalently, minimize risk when the expected return is specified. In this paper we first go through the literature of the portfolio selection. Secondly, the definition and mathematical formulation of modern portfolio theory is presented; thirdly in the next section the fundamental of classic harmony search algorithm (a metaheuristic algorithm) is illustrated, and finally, the numerical example of solving a benchmark problem of project portfolio selection and its results is presented. Provided results demonstrates that this algorithm solves the hard problem to almost optimality faster and robuster than other exact algorithms.

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