An extension of Sharpe's single-index model: portfolio selection with expert betas

A Bilbao, M Arenas, M Jiménez, B Perez Gladish () and M V Rodríguez
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A Bilbao: Universidad de Oviedo
M Arenas: Universidad de Oviedo
M Jiménez: Universidad del País Vasco, San Sebastián
B Perez Gladish: Universidad de Oviedo
M V Rodríguez: Universidad de Oviedo

Journal of the Operational Research Society, 2006, vol. 57, issue 12, 1442-1451

Abstract: Abstract This paper presents an approach to the portfolio selection problem based on Sharpe's single-index model and on Fuzzy Sets Theory. In this sense, expert estimations about future Betas of each financial asset have been included in the portfolio selection model denoted as ‘Expert Betas’ and modelled as trapezoidal fuzzy numbers. Value, ambiguity and fuzziness are three basic concepts involved in the model which provide enough information about fuzzy numbers representing ‘Expert Betas’ and that are simple to handle. In order to select an optimal portfolio, a Goal Programming model has been proposed including imprecise investor's aspirations concerning asset's proportions of both, high-and low-risk assets. Semantics of these goals are based on the fuzzy membership of a goal satisfaction set. To illustrate the proposed model a real portfolio selection problem is presented.

Keywords: portfolio selection; Sharpe's single-index model; expert betas; fuzzy number; fuzzy goal programming (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (7)

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DOI: 10.1057/palgrave.jors.2602133

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