Multi-period portfolio optimization based on credibilistic lower and upper VaR ratios

Abstract

Emerging markets, such as the Chinese financial market, are occasionally subject to extreme risk events that result in investor losses during the investment process. To address the challenge of investment selection amidst market fluctuations, considering the fuzzy uncertainty and tail risk compensation based on the asymmetric perspective, we propose to use the lower VaR ratio and the upper VaR ratio as investment objectives to construct a multi-period credibilistic portfolio selection model. The study reveals that the cumulative returns and terminal wealth of the constructed model surpassed those of the benchmark models, delivering greater social and economic welfare to investors. During extreme events, investors could promptly adjust their portfolio structure to achieve higher investment returns. Investors who prefer the lower VaR ratio tend to make conservative investment decisions and allocate a higher proportion to defensive assets, such as bonds and risk-free assets. Conversely, investors who favor the upper VaR ratio are inclined to adopt aggressive investment strategies and allocate a larger proportion to high-risk stocks. The findings demonstrate that the proposed model offers differentiated investment decisions, and the research conclusions serve as valuable references for investors engaged in multi-period asset allocation and risk management.