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Portfolio selection under uncertainty by the ordered modular average operator

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Abstract

In a world under uncertainty, the beliefs for the information underlie the behavioral style of portfolio decisions in portfolio management. In this work, we use the copula-based ordered modular averages (OMAs) in the calculation of the mean and variance of the assets’ returns for portfolio selection to capture the beliefs of the investors and the departure of rationality in evaluation. Specially, the outcomes and the probability information in terms of the decumulative probabilities are jointly transformed using appropriate copulas while satisfying the stochastic dominance in the probability-sensitivity evaluation. In addition, the diversity of the underlying copulas facilitates the challenge of the diversity of investors with different beliefs for expectations. Consequently, the mean-variance model in this work using OMA with the decumulative probabilities can encode not only the decision makers’ assessment of relative likelihoods but also the confidence attached to such assessment in the evaluation.

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Notes

  1. The data is extracted from WIND (www.wind.com.cn).

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Acknowledgements

We are grateful to Committee of the 3rd International Symposium on Interval Data Modelling (SIDM2017, Beijing) co-chaired by Prof. Shouyang Wang and Prof. Yongmiao Hong for the opportunity to present the topic and specially the helpful comments and suggestions by the participants (However, the authors are responsible for all of the possible errors.). Special thanks go to the editors and the referees for their careful work and valuable comments on the improvement of manuscript.

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Correspondence to Zhi-Hong Yi.

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The work is supported by National Natural Science Foundation of China under Grants 71473081 and 71871092, and Hunan Provincial Innovation Foundation For Postgraduate Grant CX2017B171.

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Li, HQ., Yi, ZH. & Fang, Y. Portfolio selection under uncertainty by the ordered modular average operator. Fuzzy Optim Decis Making 18, 1–14 (2019). https://doi.org/10.1007/s10700-018-9295-2

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