Bicriteria Decision Making and Financial Equilibrium: A Variational Inequality Perspective

June Dong and Anna Nagurney

Computational Economics, 2001, vol. 17, issue 1, 29-42

Abstract: In this paper we develop a framework for the study of financial equilibrium in the case of sectors in the economy, each of which is faced with two objectives/criteria in his portfolio selection decision making. In particular, we first present the bicriteria decision model of an individual financial sector, who seeks an optimal portfolio composition, given that the wishes to minimize his risk and to maximize his return. We utilize a value function approach to reformulate a sector's bicriteria optimization problem as a single optimization problem and argue that constant weight value functions may not adequately reveal a sector's preference over the return and the risk. Hence, we introduce state-dependent weights for the modeling of a sector's decision-making problem. We, subsequently, provide qualitative properties of the value function. We state the economic system conditions governing the instrument prices, define the financial equilibrium conditions, and show that they can be formulated as a variational inequality problem. Finally, qualitative properties of existence and uniqueness of the equilibrium are obtained. This work is the first to establish the connections among bicriteria problems (in the general setting of value functions), financial equilibrium problems, and variational inequality problems. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://journals.kluweronline.com/issn/0927-7099/contents (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:17:y:2001:i:1:p:29-42

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().