Abstract
This paper develops a λ mean-hybrid entropy model to deal with portfolio selection problem with both random uncertainty and fuzzy uncertainty. Solving this model provides the investor a tradeoff frontier between security return and risk. We model the security return as a triangular fuzzy random variable, where the investor’s individual preference is reflected by the pessimistic-optimistic parameter λ. We measure the security risk using the hybrid entropy in this model. Algorithm is developed to solve this bi-objective portfolio selection model. Beside, a numerical example is also presented to illustrate this approach.
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