Probability maximization models for portfolio selection under ambiguity

Takashi Hasuike, Hiroaki Ishii

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

This paper considers several probability maximization models for multi-scenario portfolio selection problems in the case that future returns in possible scenarios are multi-dimensional random variables. In order to consider occurrence probabilities and decision makers' predictions with respect to all scenarios, a portfolio selection problem setting a weight with flexibility to each scenario is proposed. Furthermore, by introducing aspiration levels to occurrence probabilities or future target profit and maximizing the minimum aspiration level, a robust portfolio selection problem is considered. Since these problems are formulated as stochastic programming problems due to the inclusion of random variables, they are transformed into deterministic equivalent problems introducing chance constraints based on the stochastic programming approach. Then, using a relation between the variance and absolute deviation of random variables, our proposed models are transformed into linear programming problems and efficient solution methods are developed to obtain the global optimal solution. Furthermore, a numerical example of a portfolio selection problem is provided to compare our proposed models with the basic model.

Original languageEnglish
Pages (from-to)159-180
Number of pages22
JournalCentral European Journal of Operations Research
Volume17
Issue number2
DOIs
Publication statusPublished - 2009 Jun 1
Externally publishedYes

Keywords

  • Multi-scenario model
  • Portfolio selection problem
  • Probability maximization model
  • Stochastic programming

ASJC Scopus subject areas

  • Management Science and Operations Research

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