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On the sensitivity of some portfolio optimization models using interval analysis

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Abstract

In this paper, the performance of the optimal portfolio is studied when the portfolio optimization model is sensitive towards the expected rate of return of the assets. It is justified that any perturbation in the expected return within some bounds provide the decision maker with a set of choices of the optimal portfolio yielding portfolio risk within a range. Due to the perturbation in the parameters, the structure of the portfolio optimization models changes, and the classical approaches for solving these models are not suitable. Here, we represent these models with varying parameters as a system of interval equations and develop a methodology to obtain the set of all possible choices of the optimal portfolio of each model.

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Acknowledgements

The authors thank the anonymous reviewers for their careful reading and helpful comments, which greatly improved the paper.

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  1. Department of Mathematics, Indian Institute of Technology Kharagpur, Kharagpur, West Bengal, 721302, India

    Sarishti Singh & Geetanjali Panda

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  1. Sarishti Singh
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Contributions

Sarishti Singh: Conceptualization, Formal analysis, Methodology, Software, Validation, Original draft writing, Writing - Review & Editing. Geetanjali Panda: Formal analysis, Investigation, Methodology, Writing - Review & Editing, Supervision.

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Correspondence to Geetanjali Panda.

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Singh, S., Panda, G. On the sensitivity of some portfolio optimization models using interval analysis. OPSEARCH (2024). https://doi.org/10.1007/s12597-024-00787-9

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