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An uncertain bi-objective mean-entropy model for portfolio selection with realistic factors

Author

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  • Lv, Linjing
  • Zhang, Bo
  • Li, Hui

Abstract

In the imprecise investment environment, there are many indeterminate factors impacting security returns. This paper introduces a portfolio optimization problem where cross-entropy is utilized to control portfolio risk within the framework of uncertainty theory and presents an uncertain bi-objective mean-entropy portfolio selection model. To be more realistic, some realistic factors such as minimum transaction lots, dividend factors and tax factors are also considered. By introducing a risk preference coefficient, the bi-objective model is converted into a single-objective model and some equivalents are discussed. Additionally, a hybrid intelligent algorithm integrating a genetic algorithm with uncertain estimation is designed to solve the proposed model. Finally, a case study is executed to confirm the practicability of the model and the performance of the algorithm, and an empirical analysis based on the proposed model and the uncertain mean–variance model is developed to illustrate the advantage of the uncertain mean-entropy model in practical investment.

Suggested Citation

  • Lv, Linjing & Zhang, Bo & Li, Hui, 2024. "An uncertain bi-objective mean-entropy model for portfolio selection with realistic factors," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 225(C), pages 216-231.
    • Handle: RePEc:eee:matcom:v:225:y:2024:i:c:p:216-231
    DOI: 10.1016/j.matcom.2024.05.013
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    References listed on IDEAS

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