An Incremental-Hybrid-Yager’s Entropy Model for Dynamic Portfolio Selection with Fuzzy Variable

Abstract EN

To settle down the resolutional uncertainty in optimum portfolio strategy, this paper addresses an incremental-hybrid-Yager’s entropy model to newly describe the relationship between return and risk.

Different from the traditional multiperiod portfolio, we design the ratio threshold to divide asset price into different time interval and use state instead of time point to model the dynamic portfolio process.

In addition, fuzzy variables are utilized to represent prices of assets, while historical data based on Markov chain is exploited to estimate membership functions of fuzzy prices.

At last, a compromised genetic algorithm is designed, and the numerical example shows that the proposed model achieves solid returns compared against the mean-variance model and Markov chain Monte Carlo method.