The Formation of Portfolio with Fuzzy Approach and Multi-objective Method


Abstract


Forming a portfolio in the investment process is a crucial component. Itis because investors want maximum profi t while expecting a minimum levelof risk. The portfolio composition is inseparable from the weighting of eachobserved stock. In fact, mathematically, there are still problems when tryingto fulfi ll the preferences that investors want. The research objective was theformation of a portfolio using a fuzzy approach and a multi-objective method.This model simultaneously maximized the return and risk of the preparedportfolio. The result was the formation of a portfolio with two categories,namely risk-seeking and risk-averse, equipped with a λ value of each method,the weight of each stock, the expected return, and risk. Parameter λ wasthe value obtained from selecting the risk level determined by the investor.Parameter λ was used to assess the level of risk and the expected return onthe portfolio preparation. The last section compared the weights, expectedreturn, and risk values of the two methods. As a result, investors in therisk seeker category have the potential to get higher expected returns whenusing the multi-objective method. In contrast, the fuzzy approach producesthe possibility of a higher expected return for investors in the risk-aversecategory.

DOI Code: 10.1285/i20705948v16n3p541

Keywords: Expected Return; Fuzzy Portfolio; Multi-objective Portfolio.

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