A Probabilistic Approach to Portfolio Optimization under Epistemic Uncertainty

1
Rajan Kumar Saha
Rajan Kumar Saha
2
Montasir Mamun Mithu
Montasir Mamun Mithu
1 Bangladesh University of Engineering & Technology

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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.

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No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

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No ethics committee approval was required for this article type.

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Not applicable for this article.

Rajan Kumar Saha. 2014. \u201cA Probabilistic Approach to Portfolio Optimization under Epistemic Uncertainty\u201d. Global Journal of Research in Engineering - G: Industrial Engineering GJRE-G Volume 14 (GJRE Volume 14 Issue G3): .

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Crossref Journal DOI 10.17406/gjre

Print ISSN 0975-5861

e-ISSN 2249-4596

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June 25, 2014

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English

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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.

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A Probabilistic Approach to Portfolio Optimization under Epistemic Uncertainty

Rajan Kumar Saha
Rajan Kumar Saha Bangladesh University of Engineering & Technology
Montasir Mamun Mithu
Montasir Mamun Mithu

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