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A risk tolerance model for portfolio adjusting problem with transaction costs based on possibilistic moments

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  • Zhang, Wei-Guo
  • Zhang, Xi-Li
  • Xu, Wei-Jun

Abstract

Due to changes of situation in financial markets and investors' preferences towards risk, an existing portfolio may not be efficient after a period of time. In this paper, we propose a possibilistic risk tolerance model for the portfolio adjusting problem based on possibility moments theory. A Sequential Minimal Optimization (SMO)-type decomposition method is developed for finding exact optimal portfolio policy without extra matrix storage. We present a simple method to estimate the possibility distributions for the returns of assets. A numerical example is provided to illustrate the effectiveness of the proposed models and approaches.

Suggested Citation

  • Zhang, Wei-Guo & Zhang, Xi-Li & Xu, Wei-Jun, 2010. "A risk tolerance model for portfolio adjusting problem with transaction costs based on possibilistic moments," Insurance: Mathematics and Economics, Elsevier, vol. 46(3), pages 493-499, June.
    • Handle: RePEc:eee:insuma:v:46:y:2010:i:3:p:493-499
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    References listed on IDEAS

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    1. Michael J. Best & Jaroslava Hlouskova, 2000. "The efficient frontier for bounded assets," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 52(2), pages 195-212, November.
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    5. Zhang, Wei-Guo & Wang, Ying-Luo, 2008. "An analytic derivation of admissible efficient frontier with borrowing," European Journal of Operational Research, Elsevier, vol. 184(1), pages 229-243, January.
    6. Giove, Silvio & Funari, Stefania & Nardelli, Carla, 2006. "An interval portfolio selection problem based on regret function," European Journal of Operational Research, Elsevier, vol. 170(1), pages 253-264, April.
    7. Zhang, Wei-Guo & Zhang, Xi-Li & Xiao, Wei-Lin, 2009. "Portfolio selection under possibilistic mean-variance utility and a SMO algorithm," European Journal of Operational Research, Elsevier, vol. 197(2), pages 693-700, September.
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    Cited by:

    1. Gupta, Pankaj & Mittal, Garima & Mehlawat, Mukesh Kumar, 2013. "Expected value multiobjective portfolio rebalancing model with fuzzy parameters," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 190-203.
    2. Yong-Jun Liu & Wei-Guo Zhang, 2018. "Multiperiod Fuzzy Portfolio Selection Optimization Model Based on Possibility Theory," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 17(03), pages 941-968, May.
    3. Zhang, Xili & Zhang, Weiguo & Xiao, Weilin, 2013. "Multi-period portfolio optimization under possibility measures," Economic Modelling, Elsevier, vol. 35(C), pages 401-408.
    4. Natalie Ramírez Carmona & Oswaldo García Salgado, 2016. "State of the art in portfolio theory: the individual analysis of actions to the multiobjective optimization. Estado del arte en teoría de portafolios: del análisis individual de acciones a la optimiza," Economia Coyuntural,Revista de temas de perspectivas y coyuntura, Instituto de Investigaciones Economicas y Sociales 'Jose Ortiz Mercado' (IIES-JOM), Facultad de Ciencias Economicas, Administrativas y Financieras, Universidad Autonoma Gabriel Rene Moreno, vol. 1(4), pages 101-144.
    5. Guo, Sini & Yu, Lean & Li, Xiang & Kar, Samarjit, 2016. "Fuzzy multi-period portfolio selection with different investment horizons," European Journal of Operational Research, Elsevier, vol. 254(3), pages 1026-1035.
    6. Liu, Fang & Zhang, Wei-Guo & Zhang, Li-Hua, 2014. "Consistency analysis of triangular fuzzy reciprocal preference relations," European Journal of Operational Research, Elsevier, vol. 235(3), pages 718-726.
    7. Liu, Yong-Jun & Zhang, Wei-Guo, 2013. "Fuzzy portfolio optimization model under real constraints," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 704-711.
    8. Yuanyuan Zhang & Xiang Li & Sini Guo, 2018. "Portfolio selection problems with Markowitz’s mean–variance framework: a review of literature," Fuzzy Optimization and Decision Making, Springer, vol. 17(2), pages 125-158, June.
    9. Yong-Jun Liu & Wei-Guo Zhang, 2018. "Fuzzy portfolio selection model with real features and different decision behaviors," Fuzzy Optimization and Decision Making, Springer, vol. 17(3), pages 317-336, September.
    10. Ying Fu & Kien Ng & Boray Huang & Huei Huang, 2015. "Portfolio optimization with transaction costs: a two-period mean-variance model," Annals of Operations Research, Springer, vol. 233(1), pages 135-156, October.

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