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A new uncertain random portfolio optimization model for complex systems with downside risks and diversification

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  • Li, Bo
  • Li, Xiangfa
  • Teo, Kok Lay
  • Zheng, Peiyao

Abstract

There are different types of securities yields in the financial market. The yields of these securities can be described as uncertain variables or random variables. This paper considers an uncertain random portfolio selection problem, in which uncertain and random return rates exist simultaneously. First, by considering downside risks and diversification constraints, an uncertain random bi-objective mean-variance-VaR-entropy model for portfolio selection problems is proposed. Here, investment return and risk are, respectively, quantified by uncertain random expected value and variance. Then the formulated uncertain random model is transformed into two equivalent deterministic models. Furthermore, we use the NSGA-II algorithm to solve the equivalent bi-objective model, and propose a new optimal solution criterion to find a single optimal solution in the Pareto optimal solution set. Finally, a numerical simulation is performed to verify the validity and the practicality of the proposed model and the NSGA-II algorithm.

Suggested Citation

  • Li, Bo & Li, Xiangfa & Teo, Kok Lay & Zheng, Peiyao, 2022. "A new uncertain random portfolio optimization model for complex systems with downside risks and diversification," Chaos, Solitons & Fractals, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:chsofr:v:160:y:2022:i:c:s0960077922004234
    DOI: 10.1016/j.chaos.2022.112213
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    References listed on IDEAS

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    8. Qin, Zhongfeng, 2015. "Mean-variance model for portfolio optimization problem in the simultaneous presence of random and uncertain returns," European Journal of Operational Research, Elsevier, vol. 245(2), pages 480-488.
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    Cited by:

    1. Wang, Xiantao & Zhu, Yuanguo & Tang, Pan, 2024. "Uncertain mean-CVaR model for portfolio selection with transaction cost and investors’ preferences," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    2. Li, Bo & Lu, Ziqiang, 2023. "Uncertain random enhanced index tracking for portfolio selection with parameter estimation and hypothesis test," Chaos, Solitons & Fractals, Elsevier, vol. 168(C).
    3. Shreya Patki & Roy H. Kwon & Yuri Lawryshyn, 2024. "Centrality-Based Equal Risk Contribution Portfolio," Risks, MDPI, vol. 12(1), pages 1-17, January.
    4. Li, Bo & Huang, Yayi, 2023. "Uncertain random portfolio selection with different mental accounts based on mixed data," Chaos, Solitons & Fractals, Elsevier, vol. 168(C).
    5. Jie, Ke-Wei & Liu, San-Yang & Sun, Xiao-Jun & Xu, Yun-Cheng, 2023. "A dynamic ripple-spreading algorithm for solving mean–variance of shortest path model in uncertain random networks," Chaos, Solitons & Fractals, Elsevier, vol. 167(C).

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