A possibilistic approach to selecting portfolios with highest utility score. (English) Zbl 1027.91038

Summary: The mean-variance methodology for the portfolio selection problem, originally proposed by H. Markowitz [Portfolio selection, J. Finance 7, 77-91 (1952)], has been one of the most important research fields in modern finance. In this paper we 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 probability distributions. We present an algorithm of complexity \(o(n^3)\) for finding an exact optimal solution (in the sense of utility scores) to the \(n\)-asset portfolio selection problem under possibility distributions.


91G10 Portfolio theory
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