The Investor’s Preferences in the Portfolio Selection Problem Based on the Goal Programming Approach

Abstract

Goal programming is the approach used for multicriteria decision making when the decision maker aims to minimize deviations between the achievement of goals and their aspiration levels. In the presence of skewness in the portfolio selection problems, the goal programming technique is an excellent and powerful quantitative tool in which the investor’s preferences among objectives are incorporated. In this study, in the mean–variance–skewness framework, the utilization of the goal programming model allows to determine the trade-off frontier or efficient frontier for a given level of decision maker’s preferences in relation to the selected parameters. Each change in the strength of preference for the expected value in relation to the third moment is a trade-off frontier in the appropriate two-dimensional space or on the surface of efficient portfolios in three-dimensional space.