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2002

A possibilistic approach to selecting portfolios with highest utility score

11 years 9 months ago
A possibilistic approach to selecting portfolios with highest utility score
The mean-variance methodology for the portfolio selection problem, originally proposed by Markowitz, has been one of the most important research fields in modern finance. In this paper we will assume that (i) each investor can assign a welfare, or utility, score to competing investment portfolios based on the expected return and risk of the portfolios; and (ii) the rates of return on securities are modelled by possibility distributions rather than probablity distributions. We will present an algorithm of complexity o(n3 ) for finding an exact optimal solution (in the sense of utility scores) to the n-asset portfolio selection problem under possibility distributions. 1 A utility function for ranking portfolios The mean-variance methodology for the portfolio selection problem, originally proposed by Markowitz [4], has been one of the most important research fields in modern finance theory [7]. The key principle of the mean-variance model is to use the expected return of a portfolio as t...
Christer Carlsson, Robert Fullér, Pé
Added 19 Dec 2010
Updated 19 Dec 2010
Type Journal
Year 2002
Where FSS
Authors Christer Carlsson, Robert Fullér, Péter Majlender
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