Credibilistic Multi-Period Mean-Entropy Rolling Portfolio Optimization Problem Based on Multi-Stage Scenario Tree

Pejman Peykani (), Mojtaba Nouri, Mir Saman Pishvaee, Camelia Oprean-Stan and Emran Mohammadi
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Pejman Peykani: School of Industrial Engineering, Iran University of Science and Technology, Tehran 1684613114, Iran
Mojtaba Nouri: School of Industrial Engineering, Iran University of Science and Technology, Tehran 1684613114, Iran
Mir Saman Pishvaee: School of Industrial Engineering, Iran University of Science and Technology, Tehran 1684613114, Iran
Emran Mohammadi: School of Industrial Engineering, Iran University of Science and Technology, Tehran 1684613114, Iran

Mathematics, 2023, vol. 11, issue 18, 1-23

Abstract: This study considers a time-consistent multi-period rolling portfolio optimization issue in the context of a fuzzy situation. Rolling optimization with a risk aversion component attempts to separate the time periods and psychological effects of one’s investment in a mathematical model. Furthermore, a resilient portfolio selection may be attained by taking into account fuzzy scenarios. Credibilistic entropy of fuzzy returns is used to measure portfolio risk because entropy, as a measure of risk, is not dependent on any certain sort of symmetric membership function of stock returns and may be estimated using nonmetric data. Mathematical modeling is performed to compare the Rolling Model (RM) and the Unified Model (UM). Two empirical studies from the Tehran stock market (10 stocks from April 2017 to April 2019) and the global stock market (20 stocks from April 2021 to April 2023) are utilized to illustrate the applicability of the suggested strategy. The findings reveal that RM can limit the risk of the portfolio at each time, but the portfolio’s return is smaller than that of UM. Furthermore, the suggested models outperform the standard deterministic model.

Keywords: portfolio optimization; fuzzy entropy; rolling optimization; credibility theory; scenario tree; multi-period portfolio model; 90-10; 90B90; 90C05; 90C29; 90C70; 90C90; 91-05; 91-10 (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
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