Uncertain Portfolio Selection with Background Risk and Liquidity Constraint

Abstract EN

This paper discusses an uncertain portfolio selection problem with consideration of background risk and asset liquidity.

In addition, the transaction costs are also considered.

The security returns, background asset return, and asset liquidity are estimated by experienced experts instead of historical data.

Regarding them as uncertain variables, a mean-risk model with background risk, liquidity, and transaction costs is proposed for portfolio selection and the crisp forms of the model are provided when security returns obey different uncertainty distributions.

Moreover, for better understanding of the impact of background risk and liquidity on portfolio selection, some important theorems are proved.

Finally, numerical experiments are presented to illustrate the modeling idea.