Multicriteria Decision Aid in Uncertainty and Financial Risk Management

Abstract

Decision science is a very broad field where several disciplines contribute in a variety of ways. Two of the major concerns among decision scientists involve the aggregation of the multiple factors (often conflicting) that are related to the considered decision problem, into a global evaluation model, as well as the modeling and management of uncertainty that is often evident in the decision environment. The former issue constitutes the focal point of interest in the field of multicriteria decision aid (MCDA), while the later has been addressed through a variety of approaches including the traditional probability theory and statistics, econometrics, as well as new innovative approaches such as fuzzy sets and other artificial intelligence techni-ques. The integration of these approaches into a global decision modeling context is of major importance in order to provide integrated decision support. On the basis of this methodological framework the scope of this chapter is twofold. Initially, to illustrate the contribution of MCDA in the management of uncertainty, and then to illustrate the applicability of MCDA in one of the most crucial decision making fields where uncertainty is involved, the field of financial risk management. A review of MCDA techniques in both these fields (uncertainty and financial risk management) is presented along with illustrative applications.