Portfolio selection under uncertainty by the ordered modular average operator

Hong-Quan Li (), Zhi-Hong Yi () and Yong Fang ()
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Hong-Quan Li: Hunan Normal University
Zhi-Hong Yi: Hunan Normal University
Yong Fang: Chinese Academy of Sciences

Fuzzy Optimization and Decision Making, 2019, vol. 18, issue 1, No 1, 14 pages

Abstract: Abstract In a world under uncertainty, the beliefs for the information underlie the behavioral style of portfolio decisions in portfolio management. In this work, we use the copula-based ordered modular averages (OMAs) in the calculation of the mean and variance of the assets’ returns for portfolio selection to capture the beliefs of the investors and the departure of rationality in evaluation. Specially, the outcomes and the probability information in terms of the decumulative probabilities are jointly transformed using appropriate copulas while satisfying the stochastic dominance in the probability-sensitivity evaluation. In addition, the diversity of the underlying copulas facilitates the challenge of the diversity of investors with different beliefs for expectations. Consequently, the mean-variance model in this work using OMA with the decumulative probabilities can encode not only the decision makers’ assessment of relative likelihoods but also the confidence attached to such assessment in the evaluation.

Keywords: Aggregation operator; Portfolio selection; The mean-variance model; The ordered modular averages; The ordered weighted averages (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10700-018-9295-2

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