MEAN-ABSOLUTE DEVIATION PORTFOLIO SELECTION MODEL WITH FUZZY RETURNS

Document Type: Research Paper

Authors

1 School of Economics and Management, Beihang University, Beijing 100191, China

2 School of Reliability and Systems Engineering, Beihang University, Beijing 100191, China

3 Sinopec Management Institute, Beijing 100012, China

Abstract

In this paper, we consider portfolio selection problem in which
security returns are regarded as fuzzy variables rather than random variables.
We first introduce a concept of absolute deviation for fuzzy variables and
prove some useful properties, which imply that absolute deviation may be
used to measure risk well. Then we propose two mean-absolute deviation
models by defining risk as absolute deviation to search for optimal portfolios.
Furthermore, we design a hybrid intelligent algorithm by integrating genetic
algorithm and fuzzy simulation to solve the proposed models. Finally, we
illustrate this approach with two numerical examples.

Keywords


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