Portfolio Optimization Based on Fuzzy Investor Risk Classification Aligned with The Sri Framework

Juraj Pekár and Richard Martinus

Politická ekonomie, vol. preprint

Abstract: Choosing the right portfolio is challenging, especially for non-professional investors. In practice, investors are often classified into three risk profiles (conservative, balanced, dynamic), while investment products in the European Union are classified into seven categories using the Summary Risk Indicator (SRI). This mismatch may lead to investors with the same profile being recommended products with different risk levels. This paper proposes a methodology that aligns investor classification with the seven-level SRI scale. A fuzzy logic based investment questionnaire classifies investors into seven risk groups. For each group, a portfolio is constructed using Conditional Value at Risk optimization under undertakings for collective investment in transferable securities (UCITS) constraints. Empirical results based on Eurostoxx 50 data from 2020-2025 period show that the optimized portfolios achieved higher returns and lower downside risk than the benchmark. For example, the SRI 5 portfolio had an annual return of 16.12% compared to 11.3% for the benchmark.

Keywords: Undertakings for Collective Investment in Transferable Securities; Packaged Retail and Insurance-based Investment Products; The Markets in Financial Instruments Directive; fuzzy; risk profile; portfolio optimization (search for similar items in EconPapers)
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DOI: 10.18267/j.polek.1560

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