Canonical Coalition Game Theory for Optimal Portfolio Selection

Habip Kocak

Asian Economic and Financial Review, 2014, vol. 4, issue 9, 1254-1259

Abstract: Special mathematical techniques have been developed in order to analyze conflict-competition situations. Game theory provides a formal analytical framework with a set of mathematical tools to study the complex intersections among rational players (Osborne, 2004). The purpose of developing this theory is to examine the rational ways of behaving for conflicting groups or individuals and to make sure that one of these groups is the winner. Throughout the past decades, game theory has made revolutionary impact on a large number of disciplines ranging from economics, engineering, political science, philosophy or even psychology (Myerson, 1991).Several approaches have been produced to the Portfolio selection problem, which became popular among researchers with the article of Harry M. Markowitz, published in Journal of finance in 1952, which occupies an essential place in the literature. Canonical Coalition Game Theory is among these approaches. In this paper the optimality of a portfolio partnership which will be created by stocks with identical targets but different risk capabilities will be examined with Coalition Game Theory. The obtained optimal gain will be distributed depending on risk coefficients using Shapley vector.

Keywords: Coalition game theory; Portfolio optimisation; Optimisation theory; Stock market; FTSE 100. (search for similar items in EconPapers)
Date: 2014
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