Portfolio selection with second order uncertain dominance constraint

• Published in: Fuzzy optimization and decision making Vol. 23; no. 4; pp. 561 - 575
• Main Authors: Huang, Xiaoxia, Meng, Xue, Xu, Xiaozhu
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.12.2024; Springer Nature B.V
• Subjects: Artificial Intelligence; Calculus of Variations and Optimal Control; Optimization; Decision making; Equivalence; Expected returns; Expected utility; Expected values; Investments; Investors; Mathematical Logic and Foundations; Mathematics; Mathematics and Statistics; Operations Research/Decision Theory; Optimization; Portfolios; Probability Theory and Stochastic Processes; Risk aversion; Utility functions; Second order uncertain dominance; Portfolio selection; Uncertainty theory
• ISSN: 1568-4539; 1573-2908
• DOI: 10.1007/s10700-024-09433-x

This paper proposes an uncertain mean-second order dominance model in the framework of uncertainty theory. By giving mean-expected utility equivalent, we show that the proposed model is suitable for rational and risk-averse investors because the portfolio produced by the model can give the investors the maximum expected return and in the meantime bring the investors expected utility value equal to or higher than the reference return no matter what specific utility functions the investors may take. By offering deterministic equivalents and comparing them with the uncertain mean-variance and uncertain mean-risk index models, we clarify the advantages of the proposed model, i.e., being easier to use and safer in investment. Furthermore, we give a numerical example and some experiments to illustrate the application of the model and the advantages of it.