Belief rule‐based system for portfolio optimisation with nonlinear cash‐flows and constraints

Belief rule‐based system for portfolio optimisation with nonlinear cash‐flows and constraints

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Article ID: iaor20125947
Volume: 223
Issue: 3
Start Page Number: 775
End Page Number: 784
Publication Date: Dec 2012
Journal: European Journal of Operational Research
Authors: , , , , ,
Keywords: investment, simulation: applications
Abstract:

A belief rule‐based (BRB) system is a generic nonlinear modelling and inference scheme. It is based on the concept of belief structures and evidential reasoning (ER), and has been shown to be capable of capturing complicated nonlinear causal relationships between antecedent attributes and consequents. The aim of this paper is to develop a BRB system that complements the RiskMetrics WealthBench system for portfolio optimisation with nonlinear cash‐flows and constraints. Two optimisation methods are presented to locate efficient portfolios under different constraints specified by the investors. Numerical studies demonstrate the effectiveness and efficiency of the proposed methodology.

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