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An efficient heuristic method for dynamic portfolio selection problem under transaction costs and uncertain conditions

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  • Najafi, Amir Abbas
  • Pourahmadi, Zahra

Abstract

Selecting the optimal combination of assets in a portfolio is one of the most important decisions in investment management. As investment is a long term concept, looking into a portfolio optimization problem just in a single period may cause loss of some opportunities that could be exploited in a long term view. Hence, it is tried to extend the problem from single to multi-period model. We include trading costs and uncertain conditions to this model which made it more realistic and complex. Hence, we propose an efficient heuristic method to tackle this problem. The efficiency of the method is examined and compared with the results of the rolling single-period optimization and the buy and hold method which shows the superiority of the proposed method.

Suggested Citation

  • Najafi, Amir Abbas & Pourahmadi, Zahra, 2016. "An efficient heuristic method for dynamic portfolio selection problem under transaction costs and uncertain conditions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 448(C), pages 154-162.
    • Handle: RePEc:eee:phsmap:v:448:y:2016:i:c:p:154-162
    DOI: 10.1016/j.physa.2015.12.048
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    1. Masoud Rahiminezhad Galankashi & Farimah Mokhatab Rafiei & Maryam Ghezelbash, 2020. "Portfolio selection: a fuzzy-ANP approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-34, December.
    2. Yue, Wei & Wang, Yuping, 2017. "A new fuzzy multi-objective higher order moment portfolio selection model for diversified portfolios," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 124-140.

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