A Probabilistic Approach to Portfolio Optimization under Epistemic Uncertainty

Authors

  • Rajan Kumar Saha

  • Montasir Mamun Mithu

Keywords:

portfolio epistemic uncertainty (EU) covariance correlation

Abstract

Portfolio is an appropriate collection or list of investments held by an organization or an individual where Portfolio optimization means to calculate the optimal weights for the collection or list of investments that gives the highest return with least risk. In previous works on this topic did not consider correlation factor and epistemic uncertainty on returns. In our model both the factors are considered because correlation between the assets exists in real life and epistemic uncertainty may exist in different rate of return of different assets. In this work two models are developed to optimize a portfolio. Two models are Optimization model without EU and Optimization model with EU. By optimization we can decide the assets on which we can invest, how much to invest and can take divestment decisions.

How to Cite

Rajan Kumar Saha, & Montasir Mamun Mithu. (2014). A Probabilistic Approach to Portfolio Optimization under Epistemic Uncertainty. Global Journals of Research in Engineering, 14(G3), 1–7. Retrieved from https://engineeringresearch.org/index.php/GJRE/article/view/1133

A Probabilistic Approach to Portfolio Optimization under Epistemic Uncertainty

Published

2014-05-15