Fuzzy Portfolio Optimization for Power Generation Assets

Barbara Glensk () and Reinhard Madlener
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Barbara Glensk: E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), Postal: Mathieustrasse 6, 52074 Aachen, Germany, http://www.eonerc.rwth-aachen.de/fcn

No 10/2010, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: Fuzzy sets theory is proposed as an alternative to the probabilistic approach for assessing portfolios of power plants, in order to capture the complex reality of decision-making processes. This paper presents different fuzzy portfolio selection models, where the rate of returns as well as the investor's aspiration levels of portfolio return and risk are regarded as fuzzy variables. Furthermore, portfolio risk is defined as a downside risk, which is why a semi-mean-absolute deviation portfolio selection model is introduced. Finally, as an illustration, the models presented are applied to a selection of power generation mixes. The efficient portfolio results show that the fuzzy portfolio selection models with different definitions of membership functions as well as the semi-mean-absolute deviation model perform better than the standard mean-variance approach. Moreover, introducing membership functions for the description of investors' aspiration levels for the expected return and risk shows how the knowledge of experts, and investors' subjective opinions, can be better integrated in the decision-making process than with probabilistic approaches.

Keywords: Portfolio Analysis; Semi-mean-absolute Deviation Model; Fuzzy Sets Theory; Optimal Power Generation Mix (search for similar items in EconPapers)
JEL-codes: C02 C44 C61 D81 Q40 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-08
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Fuzzy Portfolio Optimization of Power Generation Assets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2010_010

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