Fuzzy portfolio selection based on outranking relations and three-way decisions

Abstract

In the field of portfolio selection, it is of great importance to create a combination of alternative assets to achieve excess return and reduce risk. Based on the assumption that the investor holds securities already before the portfolio optimization, we propose a novel portfolio selection model by adopting outranking relations and three-way decisions theory in this paper. In the proposed model, outranking relations is expected to select the most rational and excellent performance security among all alternatives, while three-way decisions theory is expected to hedge against risks result from uncertainties and inaccurate information in security market. Finally an experimental study based on actual market data validates the effectiveness of the proposed portfolio selection model, which can increase the investment return while reducing the risk.