Performance of Different Risk Indicators in a Multi-Period Polynomial Portfolio Selection Problem Based on the Credibility Measure

Abstract

In this paper, we study the portfolio selection problem considering transaction costs under multiple periods. For non-professional investors, it is a critical factor to choose an appropriate model among multiple portfolio selection models in investment. Based on the credibility measure, we formulate a multi-period polynomial portfolio selection model to gather the risk indicators involving variance, semi-variance, entropy, and semi-entropy, helping investors bet on assets. According to the polynomial goal programming (PGP) approach, investors can conquer the fields by combining apposite indicators to build appropriate models. Subsequently, an adjusted genetic algorithm on the foundation of the penalty function is designed to obtain the optimal solution of this multi-period model. The results indicate that the PGP method is suitable for investors to choose the model and assigns the proper models to investors with different risk preferences.

Keywords

• multi-period portfolio selection
• genetic algorithm
• credibility measure
• risk indicator