Multi-objective stochastic programming for portfolio selection

Multi-objective stochastic programming for portfolio selection

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Article ID: iaor20084526
Country: Netherlands
Volume: 177
Issue: 3
Start Page Number: 1811
End Page Number: 1823
Publication Date: Mar 2007
Journal: European Journal of Operational Research
Authors: , ,
Keywords: programming: goal, programming: probabilistic
Abstract:

Generally, in the portfolio selection problem the Decision Maker (DM) considers simultaneously conflicting objectives such as rate of return, liquidity and risk. Multi-objective programming techniques such as goal programming (GP) and compromise programming (CP) are used to choose the portfolio best satisfying the DM's aspirations and preferences. In this article, we assume that the parameters associated with the objectives are random and normally distributed. We propose a chance constrained compromise programming model (CCCP) as a deterministic transformation to multi-objective stochastic programming portfolio model. CCCP is based on CP and chance constrained programming (CCP) models. The proposed program is illustrated by means of a portfolio selection problem from the Tunisian stock exchange market.

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