Constrained Multicriteria Sorting Applied to Portfolio Selection



In this presentation we tackle portfolio selection problems which aim at selecting a subset of alternatives considering not only the performance of the alternatives evaluated on multiple criteria, but also the performance of portfolio as a whole, on which balance over alternatives on specific attributes is required by the Decision Makers (DMs).

We propose a two-level method to handle such decision situation. First, at the individual level, the alternatives are evaluated by the sorting model ELECTRE TRI which assigns alternatives to predefined ordered categories by comparing alternatives to profiles separating the categories. The DMs' preferences on alternatives are expressed by some assignment examples they can provide, which reduces the DMs' cognitive efforts. Second, at the portfolio level, the DMs' preferences express requirements on the composition of portfolio and are modeled as constraints on category size. The method proceeds through the resolution of a Mixed Integer Program (MIP) and selects a satisfactory portfolio as close as possible to the DMs' preference.

The Seminars in Econometrics Series is supported by the Tinbergen Institute, ERIM and the Journal of Applied Econometrics.  This extra seminar is also supported by the Erasmus Research Centre on Business Intelligence (ECBI).
Contact information:
Remy Spliet