Document Type : Original Article
Authors
School of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran
Abstract
In this study, a multi-stage stochastic portfolio selection procedure is proposed. Specifically, to deal with market uncertainty, a three-pronged goal and a Wealth-Mean absolute semi deviation-Liquidity (WML) portfolio selection model based on a scenario tree are developed. Due to duration, continuity of the horizon, and uncertainty, the scenario tree is an ideal tool for modeling multi-period portfolio problems. Wealth, risk, asset investment threshold, transaction cost, and liquidity are important variables for the problem under investigation. This study uses rebalancing and mean absolute semi-deviation as measures of portfolio risk. A Node-Based Modelling (NBM) method is used to develop effective investment strategies for the long-term investment horizon. In addition, using a goal programming approach, the investigated multi-objective model converts to a single-objective model. To demonstrate the effectiveness of the proposed model, a real-world empirical application with data set from a Tehran stock market (TSE) is carried out. The experimental findings indicate the applicability of the developed model.
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