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Fuzzy Portfolio Optimization of Onshore Wind Power Plants

  • Madlener, Reinhard

    ()

    (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

  • Glensk, Barbara

    ()

    (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

  • Weber, Veronika

    ()

    (RWTH Aachen University)

In this paper we apply fuzzy set theory to the portfolio optimization of power generation assets, using a semi-mean absolute deviation (SMAD) model as a benchmark and a fuzzy semi-mean absolute deviation (FSMAD) model for comparison. The two models are applied to five onshore wind power plants in Germany considered for the portfolio analysis. The results show that the combinations of favorable assets for efficient portfolios are very similar, although the portfolio shares are markedly different. Also, the return and risk span of the SMAD model are much broader than those of the FSMAD model. The highest returns are generated by portfolios based on the latter model. Offering less portfolio choices, the FSMAD model thus facilitates decision-making. This is in compliance with the notion that portfolio optimization by fuzzy set theory is able to better account for the decision-maker’s preferences under real-world conditions.

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File URL: http://www.fcn.eonerc.rwth-aachen.de/global/show_document.asp?id=aaaaaaaaaagvvoq
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Paper provided by E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) in its series FCN Working Papers with number 10/2011.

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Length: 42 pages
Date of creation: May 2011
Date of revision: Jul 2014
Handle: RePEc:ris:fcnwpa:2011_010
Note: Revised July 2014
Contact details of provider: Web page: http://www.eonerc.rwth-aachen.de/fcn
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  1. Bar-Lev, Dan & Katz, Steven, 1976. "A Portfolio Approach to Fossil Fuel Procurement in the Electric Utility Industry," Journal of Finance, American Finance Association, vol. 31(3), pages 933-47, June.
  2. Fabien Roques & Céline Hiroux & Marcelo Saguan, 2009. "Optimal Wind Power Deployment in Europe - a Portfolio Approach," RSCAS Working Papers 2009/17, European University Institute.
  3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  4. R. E. Bellman & L. A. Zadeh, 1970. "Decision-Making in a Fuzzy Environment," Management Science, INFORMS, vol. 17(4), pages B141-B164, December.
  5. Leon, T. & Liern, V. & Vercher, E., 2002. "Viability of infeasible portfolio selection problems: A fuzzy approach," European Journal of Operational Research, Elsevier, vol. 139(1), pages 178-189, May.
  6. Yusif Simaan, 1997. "Estimation Risk in Portfolio Selection: The Mean Variance Model Versus the Mean Absolute Deviation Model," Management Science, INFORMS, vol. 43(10), pages 1437-1446, October.
  7. Srichander Ramaswamy, 1998. "Portfolio selection using fuzzy decision theory," BIS Working Papers 59, Bank for International Settlements.
  8. Boris Krey & Peter Zweifel, 2006. "Efficient Electricity Portfolios for Switzerland and the United States," SOI - Working Papers 0602, Socioeconomic Institute - University of Zurich.
  9. Hiroshi Konno & Hiroaki Yamazaki, 1991. "Mean-Absolute Deviation Portfolio Optimization Model and Its Applications to Tokyo Stock Market," Management Science, INFORMS, vol. 37(5), pages 519-531, May.
  10. Himpler, Sebastian & Madlener, Reinhard, 2011. "Repowering of Wind Turbines: Economics and Optimal Timing," FCN Working Papers 19/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  11. Glensk, Barbara & Madlener, Reinhard, 2010. "Fuzzy Portfolio Optimization for Power Generation Assets," FCN Working Papers 10/2010, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
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