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Multi-period uncertain portfolio selection model with prospect utility function

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  • Gaohuizi Guo
  • Yao Xiao
  • Cuiyou Yao

Abstract

In this paper, we discuss a multi-period portfolio optimization problem based on uncertainty theory and prospect theory. We propose an uncertain multi-period portfolio selection model, in which the return utility and risk of investment are measured by prospect theory utility function and uncertain semivariance. More realistically, the influence of transaction costs and bankruptcy of investor are also considered. Moreover, to solve the portfolio model, this paper designs a new artificial bee colony algorithm by combining sine cosine search method. Finally, a numerical experiment is presented to demonstrate the proposed model and the effectiveness of the designed algorithm.

Suggested Citation

  • Gaohuizi Guo & Yao Xiao & Cuiyou Yao, 2022. "Multi-period uncertain portfolio selection model with prospect utility function," PLOS ONE, Public Library of Science, vol. 17(9), pages 1-17, September.
    • Handle: RePEc:plo:pone00:0274625
    DOI: 10.1371/journal.pone.0274625
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    References listed on IDEAS

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    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    3. Blake, David & Wright, Douglas & Zhang, Yumeng, 2013. "Target-driven investing: Optimal investment strategies in defined contribution pension plans under loss aversion," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 195-209.
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