Volume 1, Number 2 (2016)
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Home > Journals > SCIREA Journal of Mathematics > Archive > Paper Information

Mathematical Modelling of Risk in Portfolio Optimization with Mean Extended Gini Approach

Volume 1, Issue 2, December 2016    |    PP. 190-196    |PDF (219 K)|    Pub. Date: December 21, 2016
2271 Downloads     12791 Views  

Author(s)
Lam Weng Hoe, Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia; Centre for Mathematical Sciences, Centre for Business and Management, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia
Lam Weng Siew, Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia; Centre for Mathematical Sciences, Centre for Business and Management, Universiti Tunku Abdul Rahman, Kampar, Perak, Malaysia

Abstract
Investors wish to minimize the risk and achieve the target rate of return in their investment. The mean-extended Gini model has been proposed in portfolio optimization to minimize the portfolio risk. The mean is used as the expected return of the investors and extended Gini is used as risk measure. The objective function of this model is to minimize the portfolio extended Gini. The objective of this paper is to construct the optimal portfolio by employing the mean-extended Gini model in Malaysia stock market. The data of this study consists of weekly return of 20 stocks that listed in Malaysia stock market. The mean-extended Gini model is solved with LINGO software in this study. The results of this study show that the composition of stocks in the optimal portfolio is different. Furthermore, the mean-extended Gini optimal portfolio will give the mean return at 0.001 and portfolio risk at 0.0201. This study is significant because the investors can minimize the portfolio risk and achieve the target rate of return in Malaysia stock market with the mean-extended Gini model.

Keywords
Mean Return, Risk, Optimal Portfolio, Portfolio Composition, LINGO Software

Cite this paper
Lam Weng Hoe, Lam Weng Siew, Mathematical Modelling of Risk in Portfolio Optimization with Mean Extended Gini Approach, SCIREA Journal of Mathematics. Vol. 1 , No. 2 , 2016 , pp. 190 - 196 .

References

[ 1 ] Shalit, H. and Yitzhaki, S., 1984. Mean-Gini, portfolio theory, and the pricing of risky assets. Journal of Finance, 39: 1449–1468.
[ 2 ] Butterworth, D. and Holmes, P., 2005. The hedging effectiveness of U.K. stock index futures contracts using an Extended Mean Gini approach: Evidence for the FTSE 100 and FTSE mid250 contracts. Multinational Finance Journal, 9(3-4): 131-160.
[ 3 ] Shalit, H. and Greenberg, D., 2013. Hedging with stock index options: A Mean-Extended Gini approach. Journal of Mathematical Finance, 3: 119-129.
[ 4 ] Shalit, H. and Yitzhaki, S., 1989. Evaluating the Mean-Gini approach to portfolio selection. The International Journal of Finance, 1(2): 15-31.
[ 5 ] Shalit, H. and Yitzhaki, S., 2005. The Mean-Gini efficient frontier. The Journal of Financial Research, 28: 59–75.

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