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UNCERTAINTY PORTFOLIO MODEL IN CROSS CURRENCY MARKETS

WEIJUN XU

School of Business Administration, South China University of Technology, Guangzhou 510641, China

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WEIDONG XU

Financial Engineering Research Center, Shanghai Jiaotong University, Shanghai 200052, China

Corresponding author.

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HONGYI LI

Business Administration Faculty, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong

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, and

WEIGUO ZHANG

School of Business Administration, South China University of Technology, Guangzhou 510641, China

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https://doi.org/10.1142/S0218488510006787Cited by:4 (Source: Crossref)

Abstract

Owing to the fluctuations in the financial markets, many financial variables such as expected return, volatility, or exchange rate may occur imprecisely. But many portfolio selection models consider precise input of these values. Therefore, this paper studies a multiobjective international asset allocation problem under fuzzy environment. In our portfolio selection model, both of the return risk and the exchange risk are considered. The coefficient matrices in the objectives and constraints and the decision value are considered as fuzzy variables. The calculation of the portfolio and efficient frontier is derived by considering the exchange risk in the fuzzy environment. An empirical study is performed based on a portfolio of six securities denominated in six different currencies, i.e., USD, EUR, JPY, CNY, HKD, and GBP. The α-level closed interval portfolio and the fuzzy efficient frontier are obtained with different values of α ∈ (0, 1]. The empirical results indicate that the fuzzy asset selection method is a useful tool for dealing with the imprecise problem in the real world.

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