Portfolio Selection Problem Based on Loss Aversion under Uncertain Environment

Abstract

In investment process, investors usually have the characteristic of loss aversion. This paper discusses the portfolio selection problem with loss aversion under uncertain environment. Return rates are described as uncertain variables; uncertain measure is used to measure the uncertainty. The optimal model of maximizing expected utility based on loss aversion is established. When return rates are special uncertain variables, the model can be transformed to the crisp one, for generic uncertain return rates, hybrid intelligence algorithm integrating genetic algorithm and 99-method is designed to solve the model. Finally, numerical example is given to illustrate feasibility and validity of this method.