Credibilistic Mean-Semi-Entropy Model for Multi-Period Portfolio Selection with Background Risk

Abstract

In financial markets, investors will face not only portfolio risk but also background risk. This paper proposes a credibilistic multi-objective mean-semi-entropy model with background risk for multi-period portfolio selection. In addition, realistic constraints such as liquidity, cardinality constraints, transaction costs, and buy-in thresholds are considered. For solving the proposed multi-objective problem efficiently, a novel hybrid algorithm named Hybrid Dragonfly Algorithm-Genetic Algorithm (HDA-GA) is designed by combining the advantages of the dragonfly algorithm (DA) and non-dominated sorting genetic algorithm II (NSGA II). Moreover, in the hybrid algorithm, parameter optimization, constraints handling, and external archive approaches are used to improve the ability of finding accurate approximations of Pareto optimal solutions with high diversity and coverage. Finally, we provide several empirical studies to show the validity of the proposed approaches.

A Simple View on the Interval and Fuzzy Portfolio Selection Problems

“…In this paper, we have compered the developed method only with the simple known methods which can be treated (in some sense) as asymptotic ones, because only the such type of study allows us to reveal and present transparently the specificity of a new method. The use of more complicated methods as a base of comparison, e.g., as proposed in [ 23 , 34 ], does not provide such a possibility, as it is very hard to explain reasonable the inevitable difference between the results of competing methods. Only that we can say in the such situation is that this difference may considered as an evidence in favor of our method as more methodologically justified.…”

“…A multiple-period multiple-criteria portfolio selection problem is formulated and solved using a genetic algorithm. A credibility-based mean-semi-entropy multiple-period portfolio model, considering background risk and several constraints, namely, cardinality, liquidity, and buy-in thresholds is formulated and solved in [ 34 ]. In [ 35 ], the multi-period portfolio selection problem was formulated as a bi-objective optimization model taking into account the transaction cost and bankruptcy of investor.…”