Portfolio selection using λ mean and hybrid entropy

This paper develops a lambda mean-hybrid entropy model to deal with portfolio selection problem with both random uncertainty and fuzzy uncertainty. Solving this model provides the investor a tradeoff frontier between security return and risk. We model the security return as a triangular fuzzy random variable, where the investor's individual preference is reflected by the pessimistic-optimistic parameter lambda. We measure the security risk using the hybrid entropy in this model. Algorithm is developed to solve this bi-objective portfolio selection model. Beside, a numerical example is also presented to illustrate this approach.