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Optimal Portfolio Selection Using the Black-Litterman Model With Fuzzy Views

Author

Listed:
  • Yuly Andrea Franco Gómez

    (Universitaria Uniagustiniana)

  • John Freddy Moreno Trujillo

    (Universidad Externado de Colombia)

  • Carlos Andres Zapata Quimbayo

    (Universidad Externado de Colombia)

Abstract

In this article, a robust approach to the optimal selection portfolio is implemented by incorporating the advances of the Black-Litterman (BL) model and fuzzy logic. To do that, the expected returns, the investor’s opinions (views) and the uncertainty matrix of the BL model are redefined using fuzzy logic and an optimization exercise is implemented for a portfolio of shares in the Colombian stock market. The results show an appropriate performance (out-sample) from the portfolio, in comparison with the traditional BL model and the mean-variance (MV) model, which shows that the fuzzy logic approach allows incorporating additional information to define the views and measure the uncertainty.

Suggested Citation

  • Yuly Andrea Franco Gómez & John Freddy Moreno Trujillo & Carlos Andres Zapata Quimbayo, 2022. "Optimal Portfolio Selection Using the Black-Litterman Model With Fuzzy Views," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 97, pages 369-393, July-Dece.
    • Handle: RePEc:lde:journl:y:2022:i:97:p:369-393
    DOI: 10.17533/udea.le.n97a346171
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    References listed on IDEAS

    as
    1. R. E. Bellman & L. A. Zadeh, 1970. "Decision-Making in a Fuzzy Environment," Management Science, INFORMS, vol. 17(4), pages 141-164, December.
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    More about this item

    Keywords

    optimal portfolio; Black-Litterman model; fuzzy logic.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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