A fuzzy approach to portfolio rebalancing with transaction costs

Authors:
Yong Fang;K. K. Lai;Shou-Yang Wang
Affiliations:
Institute of Systems Science, Academy of Mathematics and Systems Sciences, Chinese Academy of Sciences, Beijing, China;Department of Management Sciences, City University of Hong Kong, Kowloon, Hong Kong;Institute of Systems Science, Academy of Mathematics and Systems Sciences, Chinese Academy of Sciences, Beijing, China
Venue:
ICCS'03 Proceedings of the 2003 international conference on Computational science: PartII
Year:
2003

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Abstract

The fuzzy set is a powerful tool used to describe an uncertain financial environment in which not only the financial markets but also the financial managers' decisions are subject to vagueness, ambiguity or some other kind of fuzziness. Based on fuzzy decision theory, two portfolio rebalancing models with transaction costs are proposed. An example is given to illustrate that the two linear programming models based on fuzzy decisions can be used efficiently to solve portfolio rebalancing problems by using real data from the Shanghai Stock Exchange.