Fuzzy optimization for portfolio selection based on Embedding Theorem in Fuzzy Normed Linear Spaces

Date

2014-5-1

Author

Solatikia, Farnaz
Kiliç, Erdem
Weber, Gerhard Wilhelm

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<jats:title>Abstract</jats:title> <jats:p>Background: This paper generalizes the results of Embedding problem of Fuzzy Number Space and its extension into a Fuzzy Banach Space C(Ω) × C(Ω), where C(Ω) is the set of all real-valued continuous functions on an open set Ω. </jats:p> <jats:p>Objectives: The main idea behind our approach consists of taking advantage of interplays between fuzzy normed spaces and normed spaces in a way to get an equivalent stochastic program. This helps avoiding pitfalls due to severe oversimplification of the reality. </jats:p> <jats:p>Method: The embedding theorem shows that the set of all fuzzy numbers can be embedded into a Fuzzy Banach space. Inspired by this embedding theorem, we propose a solution concept of fuzzy optimization problem which is obtained by applying the embedding function to the original fuzzy optimization problem. </jats:p> <jats:p>Results: The proposed method is used to extend the classical Mean-Variance portfolio selection model into Mean Variance-Skewness model in fuzzy environment under the criteria on short and long term returns, liquidity and dividends. </jats:p> <jats:p>Conclusion: A fuzzy optimization problem can be transformed into a multiobjective optimization problem which can be solved by using interactive fuzzy decision making procedure. Investor preferences determine the optimal multiobjective solution according to alternative scenarios.</jats:p>

Subject Keywords

Embedding problem, Fuzzy optimization, Fuzzy Banach Space, Portfolio selection

URI

https://hdl.handle.net/11511/51456

Collections

Graduate School of Applied Mathematics, Article