Annals of Operations Research

Distributionally robust chance-constrained game model for portfolio selection in

financial market
--Manuscript Draft--

Manuscript Number: ANOR-D-23-01986

Full Title: Distributionally robust chance-constrained game model for portfolio selection in
financial market

Article Type: Original Research

Keywords: Portfolio optimization; Chance-constrained game; Uncertainty sets; Mathematical

program

Corresponding Author: VIKAS VIKRAM SINGH

IIT Delhi
New Delhi, Delhi INDIA

Corresponding Author Secondary

Information:

Corresponding Author's Institution: IIT Delhi

Corresponding Author's Secondary

Institution:

First Author: VIKAS VIKRAM SINGH

First Author Secondary Information:

Order of Authors: VIKAS VIKRAM SINGH

Varre Harsha Vardhan

Order of Authors Secondary Information:

Funding Information: DST-India Dr. VIKAS VIKRAM SINGH

(IFC/4117/DST-CNRS5th call/2017-18/2)

Abstract: Portfolio optimization problems have been proposed as a tool for selecting an optimal
portfolio for the investors. They assume that the payoff of an investor does not depend
on the actions of other investors, ignoring that in many cases a fund manager
manages multiple firms’ investments at the same time and the transaction cost incurred
by each firm depends on the investments of all the firms due to simultaneous trading
from all the accounts. In this paper, we develop a Nash equilibrium based portfolio
selection model, in which each firm seeks to maximize its payoff function determined
by expected return and transaction cost, and limit the total random loss of a portfolio to
a predetermined amount. Because the distributions of random loss vectors are only
partially known and are presumed to belong to some uncertainty sets, we express the
random loss requirements as distributionally robust chance constraints. We consider
various moments based, ϕ-divergence and Wasserstein distance based uncertainty
sets and show that there exists a Nash equilibrium for each uncertainty set. We
propose an equivalent mathematical programming problem whose global maximum
gives a Nash equilibrium. We perform numerical experiments using actual data from
the Indian stock market.

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6 Distributionally robust chance-constrained game
7
8 model for portfolio selection in financial market
9
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11 Vikas Vikram Singh1* and Varre Harsha Vardhan1
12 1 Department
13 of Mathematics, Indian Institute of Technology Delhi,
14 Hauz Khas, 110016, New Delhi, India.
15
16
17 *Corresponding author(s). E-mail(s): vikassingh@iitd.ac.in;
18 Contributing authors: harshavarre29@gmail.com;
19
20
21 Abstract
22
23 Portfolio optimization problems have been proposed as a tool for selecting an
optimal portfolio for the investors. They assume that the payoff of an investor
24
does not depend on the actions of other investors, ignoring that in many cases
25
a fund manager manages multiple firms’ investments at the same time and the
26
transaction cost incurred by each firm depends on the investments of all the firms
27
due to simultaneous trading from all the accounts. In this paper, we develop
28 a Nash equilibrium based portfolio selection model, in which each firm seeks
29 to maximize its payoff function determined by expected return and transaction
30 cost, and limit the total random loss of a portfolio to a predetermined amount.
31 Because the distributions of random loss vectors are only partially known and
32 are presumed to belong to some uncertainty sets, we express the random loss
33 requirements as distributionally robust chance constraints. We consider various
34 moments based, ϕ-divergence and Wasserstein distance based uncertainty sets
35 and show that there exists a Nash equilibrium for each uncertainty set. We pro-
36 pose an equivalent mathematical programming problem whose global maximum
37 gives a Nash equilibrium. We perform numerical experiments using actual data
38 from the Indian stock market.
39
40 Keywords: Portfolio optimization, Chance-constrained game, Uncertainty sets,
41 Mathematical program.
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 1 Introduction
1
2 An investor in the financial market is frequently interested in choosing a portfolio that
3 delivers him or her a larger return. A bigger return usually entails some risk, though.
4 Risk and profit are always trade-offs, as a result. The Markowitz mean-variance port-
5 folio optimization model [1] is based on maximizing expected return and reducing
6 the variance of random return from a portfolio. The variance is used as a measure
7 of risk in this model. Numerous of its extensions have now been studied, including
8 dynamic portfolio optimization [2, 3, & references therein]. Naslund and Whinston [4],
9 and Agnew et al. [5] considered a portfolio optimization problem in which an investor
10 is interested in maximizing expected return subject to return (loss) from a portfo-
11 lio being greater than (less than) a given threshold value, decided by the investor,
12
with at least a given probability. Such problems are frequently referred to as chance-
13
constrained portfolio selection problems since the constraint on return (loss) is defined
14
15 using a chance constraint. Since then, other variations of models for chance-constrained
16 portfolio selection, including multi-portfolio optimization, have been put out in the
17 literature [6–9]. The majority of mean-variance and chance-constrained portfolio selec-
18 tion models that have been studied in the literature can be used for a single investor
19 that acts independently and in their own best interests.
20 However, in many real-world scenarios, a fund manager manages many firms’
21 accounts simultaneously and pools the trades for common execution. When transac-
22 tions are conducted from all accounts, each firm incurs transaction costs that have
23 a fixed component in the form of account management fees and a variable compo-
24 nent owing to market impact. As a result, each firm’s transaction cost is based on
25 the investments made by all the other firms. Since the fund manager is in charge of
26 all the firms, each of which is solely concerned with its own payment, the fund man-
27 ager must choose a portfolio that can take into account the interests of all the firms.
28 In these circumstances, a Nash equilibrium-based portfolio selection model is more
29
appropriate because no firm has an incentive to request changes to its investments
30
that could increase its payoffs. There are very few research on portfolio selection based
31
32 on a Nash equilibrium in the literature [9–11]. In each of these studies, the mean-
33 variance optimization model is used to determine each player’s payoff function, and
34 the market’s influence is what causes the transaction costs. A generic application of a
35 chance-constrained game was taken into consideration by Shen et al. [12] in the context
36 of a financial market competition between two firms. The transaction cost function
37 in [12] is seen as a straightforward quadratic function of both the firms’ investment
38 vectors, but it misses the market impact. In [12] the authors assume that the random
39 loss vector from a portfolio follows a multivariate normal distribution and the numeri-
40 cal experiments are conducted using randomly generated data. The exact information
41 about the distribution of a real world data is usually not available. To the best of our
42 knowledge, no literature has taken into account a chance-constrained game portfolio
43 selection model where the distribution of loss vector is not completely known and the
44 transaction cost is determined by market impact.
45 In this paper, we consider a Nash equilibrium problem among n investment firms
46 whose accounts are managed by the same fund manager. The expected return and
47
transaction costs incurred as a result of trading in the accounts of all the firms are
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 used to define each firm’s payoff function. Each firm wants to limit its portfolio’s
1 random loss below a particular threshold. Since there is a lack of complete knowledge
2 regarding the random loss’s distribution, it is reasonable to assume that it is part of an
3 uncertainty set. We formulate the random loss constraint as a distributionally robust
4 chance constraint and consider various types of moments and statistical distance based
5 uncertainty sets. We show the existence of a Nash equilibrium for each uncertainty
6 set and propose an equivalent mathematical program whose global maximum yields a
7
Nash equilibrium. By using MATLAB to solve an equivalent mathematical program
8
using well-known optimization solvers, we carry out numerical experiments using real
9
10 data from the Indian stock market.
11 The structure of the rest of the paper is as follows. A distributionally robust
12 chance-constrained game model for n investment firms that compete in the same set
13 of portfolios is given in Section 2. In Section 3, we take into account several moments-
14 and statistical distance-based uncertainty sets and show that a Nash equilibrium exists
15 for each uncertainty set. The mathematical programming formulation of the game is
16 given in Section 4. In Section 5, numerical experiments with real data from Indian
17 stock market are provided. We conclude the paper in Section 6.
18
19
20
2 The Model
21 We consider n investment firms whose accounts are handled by the same fund manager
22 who targets the same set of portfolios for all the firms. Each firm is interested in
23 maximizing its own profit. Since the simultaneous trading in all the accounts has
24
effect on each firm’s payoff, the fund manger faces a non-cooperative game among
25
all the firms. We call each firm as a player and set of all the players is denoted by
26
27 I = {1, 2, . . . , n} . Let J denotes the set of portfolios, while Ak represents the set of
28 assets for a portfolio k ∈ J. For each player i ∈ I, let Wki be the total budget for the
29 kth portfolio and xik = (xikj )j∈Ak denotes an investment vector for a portfolio k ∈ J,
30 where xikj is the amount of money invested by player i in the j th asset of the k th
31 portfolio. The investment profile xi of a player i is the vector of the investment vectors
32 of all the portfolios, i.e., xi = (xik )k∈J . We denote the set of all investment profiles of
33 a player i by X i and it is defined as
34
35
 
 
36
X
X i = xi | xikj ≤ Wki , xikj ≥ 0, ∀ k ∈ J, j ∈ Ak . (1)
37 
j∈Ak

38
39
40 A vector x = (x1 , x2 , . . . , xn ) is called an investment profile of all the players. In short,
41 we write x = (xi , x−i ) where x−i represents the vector of strategies of all the players
42 but player i. When the fund manager simultaneously chooses the investment profiles
43 of all the players, a random return is received by all the players. The individual trade
44 of each player suffers the market impact caused by a shortage of liquidity when the
45 trades from all the players are executed simultaneously. This happens because the
46 joint demand of the asset can be tremendously larger than the individual demand and
47 as a consequence every player incurs transaction costs that depend on the investment
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 profiles of all the players. We consider the market impact model from [10] where the
1 transaction cost of each player depend on a market impact matrix. A market impact
2 matrix Ωik ∈ R|Ak |×|Ak | , which is a positive semi-definite matrix, is considered to take
3 th
into account the transaction cost incurred by a player i. The (p, q) entry of the
4 i
matrix Ωk denotes the impact of liquidity of asset p on the liquidity of asset q for
5
the k th portfolio of player i. Since huge trades in some company’s stock can attract
6
more trading in the stocks of related companies and different firms may have different
7
8 beliefs about the market impact, it is reasonable to assume Ωik a non-diagonal matrix
9 that is different for each player i. We consider a linear market impact unitary cost
10 function for each player. Let vkz ∈ R|Ak | be the current investment position of player
11 z in a portfolio k and it decides to changes its investment to xzk . The deviation of the
12 amount of zth player’s investment in each available asset of portfolio k with respect
13 to the current position is given by xzk − vkz . The unitary transaction cost of player i
14 for portfolio k due to rebalancing from vkz to xzk by player z is given by
15
16 n
X
17 Ωik (xzk − vkz ) .
18 z=1
19
20 Therefore, for an investment profile (xi , x−i ) of all the players, the total transaction
21 cost of player i is given by
22 ( )
n
23 i −i
X
T X
24 Ci (x , x ) = xik − vki Ωik (xzk − vkz ) . (2)
25 k∈J z=1

26
27 Let Rki = (Rkji
)j∈Ak be the random return vector of player i from portfolio k ∈ J,
i
28 where Rkj is unit random return from asset j of portfolio k. Each player is interested
29 in the expected returns. Therefore, the payoff function of a player i, when all the
30 players simultaneously choose investment profile (xi , x−i ), is given by
31
32
( n
)

X 
T i T
X
ui xi , x−i = i
xik − xik − vk Ωik (xzk − vkz ) .


33 E Rk (3)
34 k∈J z=1
35
36 It is well known that the financial markets are subject to risk. Therefore, it is reason-
37 able to assume that each player would like to keep its loss below certain fixed constant.
38 Let rki = (rkj
i
)j∈Ak be a random loss vector of player i, per unit investment, from the
39 portfolio k. We define loss vector as a negative of the return vector, i.e., rki = −Rki for
40 all k ∈ J and i ∈ I. Let dik be the maximum allowable loss of player i for the kth port-
41 folio. We consider the case where the loss constraint of each player is satisfied with at
42 least a given probability level. Therefore, an investment profile xi = (xik )k∈J of player
43
i satisfies the following chance constraints
44
45
P (xik )T rki ≤ dik ≥ αki ,

46 ∀ k ∈ J, (4)
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 where αi = (αki )k∈J is a given probability level vector of player i. When the loss vector
1 rki follows a multivariate normal distribution with mean µik and covariance matrix Σik ,
2 the chance constraint (4) is equivalent to the following second-order cone constraint
3 (from [13]).
4 1
(µik )T xik + ψ −1 (αki )∥(Σik ) 2 xik ∥2 ≤ dik , (5)
5
6 where ψ −1 (·) is the quantile function of the standard normal distribution and ∥ · ∥2 is
7 the Euclidean norm. The reformulated constraint (5) forms a convex set for αki ≥ 0.5.
8 However, in financial market the random losses from a portfolio need not follow a mul-
9 tivariate normal distribution. In Appendix A, we present a real-life data set from S &
10 P BSE 100 index and perform hypothesis testing against multivariate normal distri-
11 bution. The hypothesis testing concludes that the data does not follow a multivariate
12 normal distribution. Therefore, assumption about having complete information of the
13 distribution of rki is not valid in real world. To overcome this problem, we consider
14 the case where only partial information about the distribution of rki for all k ∈ J and
15 i ∈ I is available. We assume that a true distribution of rki belongs to an uncertainty
16 set which is constructed using the partial information about the distribution. By con-
17 sidering worst case scenario, we replace the chance constraints (4) by distributionally
18
robust chance constraints. Therefore, the investment profile xi of a player i satisfies
19
the following distributionally robust chance constraints
20
21 T
22 inf PF ((xik ) rki ≤ dik ) ≥ αki , ∀ k ∈ J, (6)
i
F ∈Dk
23
24
25 where F is the distribution of rki and Dki is a given uncertainty set. Therefore, the set
26 of feasible investment profiles of a player i is given by
27  
28 T
Sαi i = xi ∈ X i | inf PF ((xik ) rki ≤ dik ) ≥ αki , ∀ k ∈ J . (7)
i
29 F ∈Dk
30

31 A non-cooperative game characterized by the tuple I, (ui )i∈I , (Sαi i )i∈I is called a
32 distributionally robust chance-constrained game and it is denoted by Gα . We assume
33 that the set Sαi i , i ∈ I, is non-empty, and uncertainty sets Dki , the market impact
34 matrices Ωik for all k ∈ J, i ∈ I, and the probability level αi for all i ∈ I are known to all
35 the players. Then, the game Gα is a non-cooperative game with complete information.
36 For a given strategy profile x−i of other players, a set of best response strategies of
37
player i at probability level vector αi is defined as
38
39 i
(x−i ) = x̄i ∈ Sαi i | ui x̄i , x−i ≥ ui xi , x−i , ∀ xi ∈ Sαi i



40 BRα i

41
42 A strategy profile x∗ = (xi∗ , x−i∗ ) is said to be a Nash equilibrium of the game Gα at
43 probability level vector (αi )i∈I if for each i ∈ I the following inequalities hold
44
ui xi∗ , x−i∗ ≥ ui xi , x−i∗ , ∀ xi ∈ Sαi i .



45
46
47 In other words, x∗ is a Nash equilibrium if and only if xi∗ ∈ BRα
i
i
(x−i∗ ) for all i ∈ I.
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 3 DRCCG under moments and statistical distance
1
2
based uncertainty sets
3 In this section, we consider DRCCG under different types of uncertainty sets. The
4 moments based and statistical distance based uncertainty sets are more commonly
5 used in the literature. The moments based uncertainty sets are constructed using
6
full/partial information about first two moments of the distribution. The statistical
7
distance based uncertainty sets are constructed using ϕ−divergence distance metric
8
9 and Wasserstein distance metric. For each uncertainty set, we show that there exists a
10 Nash equilibrium of the DRCCG. The strategy sets Sαi i , i ∈ I, contain distributionally
11 robust chance constraint (6) which is difficult to handle in its present form. Therefore,
12 we first present the reformulation of (6) for each uncertainty set.
13
14 3.1 Reformulation of distributionally robust chance constraint
15
16 For each type of uncertainty set, we show that (6) can be equivalently represented as
17 a second-order cone constraint.
18
19 3.1.1 Moments based uncertainty sets
20
Let µik ∈ R|Ak | and Σik ∈ R|Ak |×|Ak | be a positive definite matrix which is denoted by
21
22 Σik ≻ 0. We consider the following three different types of moments based uncertainty
23 sets based on full/partial information about the mean vector and covariance matrix
24 of rki .
25 1. Uncertainty set with known mean and known covariance matrix: In this
26 case, the uncertainty set of the distribution of rki is defined by
27
28
D1 (µik , Σik ) = Fki ∈ M+ E(rki ) = µik , COV (rki ) = Σik ,

(8)
29
30
31 2. Uncertainty set with known mean and unknown covariance matrix: In
32 this case, the uncertainty set of the distribution of rki is defined by
33
D2 (µik , Σik ) = Fki ∈ M+ E(rki ) = µik , COV (rki ) ⪯ δk0
i
Σik ,

34 (9)
35
36 3. Uncertainty set with unknown mean and unknown covariance matrix: In
37 this case, the uncertainty set of the distribution of rki is defined by
38 n
39 D3 (µik , Σik ) = Fki ∈ M+ (E(rki ) − µik )T (Σik )−1 (E(rki ) − µik ) ≤ δk1
i
,
40 o
41 COV (rki ) ⪯ δk2 1
Σik , (10)
42
43
44 where M+ is the set probability measures on R|Ak | , and δk0 i i
, δk2 i
≥ 1, δk1 ≥ 0, and
i i
45 COV(rk ) is the covariance matrix of rk . For given matrices A and B, A ⪯ B implies
46 that B − A is a positive semi-definite matrix.
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 Lemma 1. Let the distribution of rki , k ∈ J, belongs to the uncertainty sets defined by
1 (8),(9), (10). Then, the distributionally robust chance constraint (6) can be equivalently
2 reformulated as the following second-order cone constraint
3
4 (µik )T xik + κ(αki ) (Σik ) 2 xik
1
≤ dik , ∀ k ∈ J, (11)
5 2
6
7 where κ(αki ) is a real number whose value is given in Table 1 for each uncertainty set.
8
9 Table 1 Value of κ(αik ) for moments based uncertainty set
10
11
Uncertainty Set D1 (µik , Σik ) D2 (µik , Σik ) D3 (µik , Σik )
12
13 s s s
αik αik δk0
i αik δk2
i q
14 κ(αik ) + i
δk1
1− αik 1− αik 1− αik
15
16
17
18 Proof. For uncertainty set (8), the proof follows from Theorem 3.1 of [14] and
19 for uncertainty sets (9) and (10) it follows from Lemma 2 and Lemma 3 of [15],
20 respectively.
21
22 3.1.2 Statistical distance based uncertainty sets
23 We consider statistical distance based uncertainty sets using ϕ-divergence distance and
24
Wasserstein distance. In such uncertainty sets, a reference distribution is given which
25
26 is estimated using historical data. It is believed that the true distribution belongs to
27 a ball, defined using a statistical distance metric, of positive radius and centered at a
28 reference distribution. We first consider the uncertainty sets defined by ϕ-divergence
29 distance.
30 Definition 1. The ϕ-divergence distance between two probability measures ν1 and ν2
31 with densities fν1 and fν2 , respectively is given by
32 Z  
33 fν1 (ξ)
Iϕ (ν1 , ν2 ) = ϕ fν2 (ξ)dξ.
34 R|Ak | fν2 (ξ)
35
36 We refer to Section 2 of [16] for different choices of ϕ. We construct an uncertainty
37 set for the true distribution of rki which is within the ϕ-divergence distance of θki > 0
38 from a reference distribution which is considered as a multivariate normal distribution
39 ν̂ki with the mean vector µik and the covariance matrix Σik . The uncertainty set is
40 defined as
41 Dϕ (ν̂ki , θki ) = Fki ∈ M+ | Iϕ (Fki , ν̂ki ) ≤ θki .

(12)
42 We study four types of ϕ−divergences listed in Table 2.
43 Lemma 2. Let the distribution of rki , k ∈ J, belongs to the uncertainty set defined
44
by (12). Then, the distributionally robust chance constraint (6) can be equivalently
45
reformulated as the following constraint
46
47 1
(µik )T xik + ψ −1 (f (αki , θki ))∥ (Σik ) 2 xik ∥2 ≤ dik , ∀ k ∈ J, (13)
48
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 Table 2 List of selected ϕ−divergences
1
Divergence ϕ(t), t ≥ 0
2
Kullback-leibler t log(t) − t + 1
3
Variation distance |t − 1|
4
5 modified χ2 −distance (t − 1)2
√
6 Hellinger distance ( t − 1)2
7
8 where the values of θki , αki and f (αki , θki ) are given in the Table 3 for different
9 ϕ−divergences and ψ −1 is a quantile function of 1-dimensional normal distribution.
10
11
Table 3 The function f for the selected ϕ−divergence and the value of θki and αik
12
13
14 Divergence f (αik , θki ) θki , αik
15 i i
16 e−θk xαk − 1
Kullback-Leibler inf θki > 0, 0 < αik < 1
17 x∈(0,1) x−1
18 i
θk
Variation distance αik + θki > 0, 0 < αik < 1
19 2

20 q
i 2 +4θ i (αi −(αi )2 )−(2αi −1)θ i
θk 1
21 modified χ2 −distance αik + k k k
i +2
2θk
k k
θki > 0, 2
< αik < 1
22 √
−B+ ∆
23 2
, √
0 < θki < 2 − 2,
24 i 2
(2−θk )
25 where B = −(2 − (2 − θki )2 )(1 − αik ) − 2
,
26 Hellinger-distance  2
i 2
(2−θk )
27 C= 4
− 1 + αik ,
28 0 < αik < 1
29 ∆ = B 2 − 4C
30
31
32
33 Proof. It follows from Theorem 3 of [17] and Proposition 2, 3 and 4 of [16], for the case
34 of Hellinger distance and rest of other ϕ-divergences listed in Table 3, respectively,
35 that the constraint (6) is equivalent to following chance constraint
36
Pν̃ki (xik )T rki ≤ dik ≥ f (αki , θki ),

37 ∀ k ∈ J. (14)
38
39 Since ν̃ki is a normal distribution, the constraint (14) is equivalent to (13).
40
41 Lemma 3. For each i ∈ I and k ∈ J, (13) is a second-order cone constraint for
first three ϕ-divergences listed in Table 3 if αki ∈ 21 , 1 and

42 for the
i case of Hellinger- i
h
43 distance, (13) is a second-order cone constraint if αki ∈ 1 4−θk
44 2, 4 .
45 Proof. It is enough to show that f (αki , θki ) ≥ αki because under this condition
46 ψ −1 (f (αki , θik )) ≥ 0 and (13) becomes a second-order cone constraint. In the case of
47
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 variation distance, the above condition trivially holds. For rest of ϕ-divergences, the
1 proof is given in Appendix B
2
3 Remark 1. From Lemma 3 shows that for sufficiently small θki , in case of Hellinger
4 distance, the value of αki is close to 1, i.e., there is a trade-off between convexity of
5 (13) with high confidence level and robustness of the model.
6 We now consider the uncertainty sets defined by Wasserstein distance. As similar
7 to the ϕ-divergence case, we assume that the reference distribution ν̂ki is a multivariate
8 normal distribution with mean vector µik and positive definite covariance matrix Σik .
9 For each i ∈ I and k ∈ J, the uncertainty set of the distribution of rki is defined as
10
DW (ν̂ki ) = Fki : dW (Fki , ν̂ki ) ≤ δki , ,

11 (15)
12
13 where δki > 0 is a predefined radius and dW (·, ·) is the Wasserstein distance defined by
14
15
Z 
16 dW (ν, ν̂ki ) = inf ∥ξ1 − ξ2 ∥ π(dξ1 , dξ2 ) ,
π∈Π Ω×Ω̂
17
18
where Π is the space of all joint distributions of ξ1 and ξ2 with marginals ν and ν̂ki ,
19 1

20 respectively. The norm ∥ · ∥ := ∥(Σik )− 2 (·)∥2 .

21 Lemma 4. Let the distribution of rki , k ∈ J, belongs to the uncertainty set defined
22 by (15). Then, the distributionally robust chance constraint (6) can be equivalently
23 reformulated as the following constraint
24 1
25 (xik )T µik − ηki ∥ (Σik ) 2 xik ∥2 ≤ dik , k ∈ J. (16)
i
26 For each k ∈ J, ηk is defined as
27
( )
28 (1 − α̂i )Tαˆi − (1 − αki )Tαik − δki
29 ηki = sup , (17)
30 αˆi ∈(αik ,1) α̂i − αki
31
32 where
q2
1−αi
33 − k
e 2
34 Tαik = √ ,
35 (1 − αki ) 2π
36 and qαik is given by
37 qαik = ψ −1 (αki ).
38
39 Proof. The proof directly follows from the arguments given in the proof of Theorem
40 1 of [18].
41 The convexity of the constraint (16) depends on the sign of ηki given by (17)
42 which further depends on the value of radius δki of the Wasserstein ball. The following
43 assumption on δki makes (16) a second-order cone constraint.
44
Assumption 1. The radius δki of the Wasserstein ball satisfies the following condition
45
46 h i
47 δki ≥ max (1 − α̂i )Tαˆi − (1 − αki )Tαik .
αˆi ∈(αik ,1)
48
49
50 9
51
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54
55
56
57
58
59
60
61
62
63
64
65
 It follows from Lemma 1-4 that the strategy set Sαi i of firm i, i ∈ I can be
1 equivalently written as
2
n o
3 1
Sαi i = xi ∈ X i (xik )T µik + κ(αki )∥ (Σik ) 2 xik ∥2 ≤ dik , ∀ k ∈ J , (18)
4
5
6 where the value of κ(αki ) depends on the choice of uncertainty set. For moments based
7 uncertainty set the value of κ(αki ) is summarized in Table 1. For ϕ-divergence based
8 uncertainty set κ(αki ) = ψ −1 (f (αki , θki )), where the value of f (αki , θki ) for different
9 ϕ-divergences are summarized in Table 3, and for the case of Wasserstein distance
10 κ(αki ) = −ηki , where ηki is given by (17).
11
12 3.2 Existence of Nash Equilibrium
13
14 In this section, we show that there exists a Nash equilibrium of the DRCCG, for each
15 uncertainty set.
16 Lemma 5. For each i ∈ I, the payoff function ui (xi , x−i ) defined by (3) is a concave
17 function of xi for all x−i .
18
19 Proof. For a fixed x−i , all the terms of ui (xi , x−i ) are linear function of xi except
20 the term −(xi )T Ωik xi which is a concave function of xi because Ωik is a positive semi-
21 definite matrix. Therefore, ui (xi , x−i ) is a concave function of xi for all x−i .
22
Lemma 6. For each i ∈ I, k ∈ J, let
23
24 1. αki ∈ (0, 1) for all moments based uncertainty sets,
4−θ i
h i
25 2. αki ∈ [ 12 , 1] for first three ϕ-divergences listed in Table 3 and αki ∈ 12 , 4 k for the
26 √
27 case of Hellinger-distance, where 0 < θki < 2 − 2,
28 3. radius δki of the Wasserstein ball satisfies Assumption 1 and αki ∈ (0, 1).
29
Then, the strategy set Sαi i defined by (18) is a convex and compact set.
30
31 Proof. Since X i is a convex set, to prove that Sαi i is a convex set, it is enough to show
32 that the constraint
1
33 (xik )T µik + κ(αki )∥ (Σik ) 2 xik ∥2 ≤ dik , (19)
34
is convex. If κ(αki ) is non-negative, the above constraint is convex. For moments
35
36 based uncertainty set, it is clear from Table 1 that κ(αki ) is non-negative. For each ϕ-
37 divergence based uncertainty set, it follows from Lemma 2 that (19) is a second-order
38 cone constraint. For Wasserstein distance case, under Assumption 1, κ(αki ) = −ηki ≥ 0.
39 The set Sαi i is a compact set because it is a closed subset of the compact set X i .
40

Theorem 2. Consider a DRCCG game Gα defined by a tuple I, (ui )i∈I , Sαi i , where
41 for each i ∈ I, the payoff function ui (xi , x−i ) is defined by (3) and the strategy set
42
Sαi i is defined by (18). Let the conditions 1, 2, 3 of Lemma 6 hold. Then, there exists
43
a Nash equilibrium of the game Gα .
44
45 Proof. It is clear that the payoff function ui (xi , x−i ), i ∈ I, is a continuous function
46 of x and it follows from Lemma 5 that it is a concave function of xi for a fixed x−i .
47 The strategy set Sαi i is assumed to be a nonempty set and it follows from Lemma 6
48
49
50 10
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 that Sαi i , i ∈ I, is a convex and compact set. Therefore, it follows from Theorem 4 of
1 [19] that there exists a Nash equilibrium of the game Gα .
2
3
4 4 Mathematical Programming formulation
5 In this section, we focus on computing the Nash equilibria of the game Gα . A Nash
6
equilibrium x can be viewed as a strategy profile where xi is a best response of x−i
7
for each i ∈ I. It follows from Lemma 5 and 6 that for a fixed x−i a strategy xi of
8
9 player i such that xi ∈ BRα i
i
(x−i ) can be obtained by solving the following convex
10 optimization problem
11 ( n
)
12 X
i

T X
i T
X
xik − xik − vk Ωik (xzk − vkz ) 


max E Rk

13 xi ,ti



k∈J k∈J z=1 
14 X



s.t. (i) xikj ≤ Wki , ∀ k ∈ J,

15 


16 j∈Ak (Pi )
17
T 
(ii) µik xik + κ(αki ) tik 2 ≤ dik , ∀ k ∈ J,


18 


i 1/2

19 (iii) tik = Σk


xik , ∀ k ∈ J,




20 
(iv) xikj ≥ 0, ∀ j ∈ Ak , ∀ k ∈ J.


21
22
23 The Lagrangian dual of (Pi ) is given by
24 ( )
25 n
X 
T X
T X
Rki xik xik vki Ωik (xzk vkz )

26 min max E − − −
γ i ,δ i ,λi ,β i xi ,ti
27 k∈J k∈J z=1
 
28 X X X 
T 
29 + δki Wki − xikj  + λik dik − µik xik − κ(αki ) tik 2
30 k∈J j∈Ak k∈J
31 X
T 
1/2  X
T
32 + γki tik − Σik xik + βki xik ,
33 k∈J k∈J
34 (20)
35
36 |A |
where δki ∈ R+ , λik ∈ R+ , γki ∈ R|Ak | , βki ∈ R+ k , for all k ∈ J are the Lagrange
37 multipliers corresponding to constraints (i), (ii), (iii) and (iv), respectively. We sim-
38 plify (20) by consider inner maximization problem separately. By rearranging the
39
terms involving xi and ti together, the inner maximization problem for fixed Lagrange
40
41
42
43
44
45
46
47
48
49
50 11
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 multipliers can be written as follows
1
2
X
T
max − xik Ωik xik
3 xi
k∈J
4 ( n
5 +
X
xk i T


T
E Rki + Ωik vki + Ωik vki − Ωik
  X
(xzk − vkz ) − Σik

1/2 i
γk
6
k∈J z̸=i;z=1
7 )
8
9 − δki 1|Ak | − λik µik + βki
10 Xh
T i
11 +max γki tik − λik κ(αki ) tik 2
ti
12 k∈J
13 
n

14 +
X
 vk i T


Ωik
X
(xzk − vkz ) − vk i T


Ωik vki + δki Wki + λik dik 
15
k∈J z̸=i;z=1
16
17 (21)
18
19 Using the first order condition, the maximum value with respect to xik is given by
20 1 X i
T
−1 i
Pk (Ωik )T Pk , where
21 4
k∈J
22
23
T X
1/2 i
Pki = E Rki + Ωik vki + Ωik vki − Ωik (xzk − vkz ) − Σik γk − δki 1|Ak | − λik µik + βki
 
24
25 z̸=i

26 (22)
27 The second maximum value with respect to tik is unbounded unless the following
28 condition is satisfied
29 γki 2 ≤ λik κ(αki ), ∀ k ∈ J. (23)
30 Therefore, the dual of the problem (Pi ) is given by
31
32 1 X i
T
−1 i 
33 min Pk (Ωik )T Pk 
γ i ,δ i ,λi ,β i 4



34 k∈J 

 
35 X
T i X z
T i i



i z i i i i i
36 +  vk Ω k (xk − vk ) − vk Ωk vk + δk Wk + λk dk  (Di )
37 k∈J z̸=i



38

i i i

s.t. (i) γk 2 ≤ λk κ(αk ), ∀ k ∈ J,


39 


i i i 
40 (ii) λk ≥ 0, δk ≥ 0, βk ≥ 0, ∀ k ∈ J.
41
42 We assume that there exists a point xi ∈ Sαi i such that all the inequality constraints are
43 strictly feasible. This condition is called Slater condition under which strong duality
44 holds between (Pi ) and (Di ) [20]. We propose a single mathematical programming
45 problem by combining n primal-dual pairs (Pi )-(Di ). Using strong duality, we show
46
that the global maximizers of the mathematical program characterizes Nash equilibria
47
48
49
50 12
51
52
53
54
55
56
57
58
59
60
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62
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64
65
 





of the game Gα . Let ζ = xik k∈J
, γki k∈J
, δki k∈J
, λik k∈J
, βki k∈J
be the
1 i∈I
2 vector of the decision variables associated with (Pi ) and (Di ) for all i ∈ I. Define
3 functions fi (ζ) and gi (ζ) as follows
4 ( )
n
5 X  
T i X
T X
6 fi (ζ) = E Rki xk − xik − vki Ωik (xzk − vkz )
k∈J k∈J z=1
7
8 1 X i
T  i
T −1 i X h i
T i X z
T
gi (ζ) = Pk Ωk Pk + v k Ωk (xk − vkz ) − vki Ωik vki
9 4
k∈J k∈J z̸=i
10 i
11 +δk Wki + λik dik
i

12
13 Let h(ζ) denote the objective function of the mathematical program and it is defined
14 as
15 h(ζ) =
X
fi (ζ) − gi (ζ).
16
i∈I
17
18 We have the following characterization for Nash equilibrium of the game
Gα .
19 Theorem 3. Consider the game Gα defined by a tuple I, (ui )i∈I , Sαi i , where for
20 each i ∈ I, the payoff function ui (xi , x−i ) is defined by (3) and the strategy set Sαi i is
21 defined by (18). Let the conditions 1, 2, 3 of Lemma 6 hold. Then the following results
22 hold.
23 1. If i∗
Gα , there exists a vector ζ ∗ =
24  (x )i∈I
is a Nash


equilibrium of the game



i∗ i∗ i∗ i∗ i∗
25 x , γk k∈J , δk k∈J , λk k∈J , βk k∈J such that it is a global maximizer
i∈I
26 of the following mathematical program
27 
28 max h(ζ) 
29 ζ 



30 s.t. (i) γki ≤ λik κ(αki ), ∀ k ∈ J, ∀ i ∈ I,


2


31 i T

1/2 i


xik + κ(αki ) Σik xk ≤ dik , ∀ k ∈ J, ∀ i ∈ I,


32 (ii) µk (MP)
2
33 X 
xikj ≤ Wki , ∀ k ∈ J, ∀ i ∈ I,

(iii)

34




35 j∈Ak 


(iv) xik ≥ 0, λik ≥ 0, δki ≥ 0, βki ≥ 0, ∀ k ∈ J, ∀ i ∈ I.

36 
37
38  
2. If ζ ∗ = xi∗ , γki∗ k∈J , δki∗ k∈J , λi∗



i∗


39 k k∈J , βk k∈J is a global maximizer of
i∈I
40 i∗
(MP), (x )i∈I is a Nash equilibrium of the game Gα .
41
42 Proof. 1. Let (xi∗ )i∈I be a Nash equilibrium of the game Gα which implies that

1/2 i∗
43 for the fixed x−i∗ , (xi∗ , (ti∗ i∗
k )k∈J where tk = Σik xk is an optimal
2
44 solution of (Pi ) for each i ∈ I. Therefore, there exists an optimal solution
45 
i∗

i∗

i∗

i∗


46 γk k∈J , δk k∈J , λk k∈J , βk k∈J of dual problem (Di ) for each i ∈ I.
47 Since strong duality holds, fi (ζ ∗ ) = gi (ζ ∗ ) for all i ∈ I which in turn implies that
48
49
50 13
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 h(ζ ∗ ) = 0. Let ζ be a feasible point of (MP). Since the feasible region of (MP)
1 contains all the constraints of (Pi ) and (Di ), from weak duality fi (ζ) ≤ gi (ζ) for
2 all i ∈ I. This implies that h(ζ) ≤ 0 for all feasible solution of (MP). Hence, ζ ∗ is
3 a global maximizer of (MP).
4 2. Let ζ ∗ be a global maximizer of (MP) which implies that h(ζ ∗ ) = 0. Since at
5 ζ ∗ weak duality holds for each primal-dual pair (Pi )-(Di ), from h(ζ ∗ ) = 0 we
6 get fi (ζ ∗ ) = gi (ζ ∗ ) for all i ∈ I. For an arbitrary xi ∈ Sαi i , (xi , (tik )k∈J ), where
7
1/2 i
8 tik = Σik xk , is a feasible solution of (Pi ). It follows from weak duality that
2
9
10 ui (xi , x−i∗ ) ≤ gi (ζ ∗ ) = fi (ζ ∗ ) = ui (xi∗ , x−i∗ ).
11
12
Therefore,
13
ui (xi∗ , x−i∗ ) ≥ ui (xi , x−i∗ ), ∀ xi ∈ Sαi i .
14
i∗
15 This implies that (x )i∈I is a Nash equilibrium of the game Gα .
16
17
18 5 Numerical Experiment
19
20 We take real-world data from the Indian stock market and perform the numerical
21 experiments for the case of two firms by solving the mathematical program (MP). The
22 parameters used in (MP) are estimated from the data. We use daily pricing data from
23 October 10, 2018, through October 10, 2022 available in Yahoo Finance. We consider
24
the investments across 26 assets that are split into 7 portfolios as given in Table 4.
25
These assets are chosen from the S&P BSE 100 index because they are traded more
26
27 often and are divided into various portfolios based on their industry sectors. To ensure
28 that each asset has a complete and equal history, only those assets that are existed in
29 the market during 2018-2022 are considered. For each asset we collect the information
30
31 Table 4 Set of portfolios
32
33 Portfolio Assets
Power gen & dist Tata Power, NTPC, Power Grid Corp
34
Banks State Bank of India, ICICI Bank, HDFC BAnk, Kotak Mahindra Bank
35 Mining Vedanta, HPCL, ONGC
36 Automoblie Ashok Leyland, Mahindra, Maruti Suzuki, Hero Motocorp, Bajaj Auto
37 IT services TCS, WIPRO, INFOSYS
38 Finance Bajaj Finance, Adani Enterprises, Chola. Invest. and Fin. Co.Bajaj Finserv
39 FMCG Colgate-Palmolive, Dabur, Britannia, Nestle
40
41
42 including the asset’s daily prices for the Open, High, Low, Close, Adjusted Close, and
43 Volume Traded. Figure 1 show the sample of the financial data of an asset. In the
44 next section, we first describe the procedure to estimate the parameters, from the
45 data, used in the mathematical program (MP). Then, we use these values to solve the
46 mathematical program using nonlinear optimization solver fmincon in the MATLAB.
47
48
49
50 14
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 1
2
3 Open High Low Close Volume

4 240.97982206661598 241.17122488002803 234.37631548066082 235.57260131835938 14993188.0

5 238.826512919421 241.9368561672515 237.582372699669 239.73568725585938 19883309.0
6
240.88412299048812 242.12826323206323 234.95054791885977 236.67320251464844 18824449.0
7
241.74545693296398 250.6458122146693 239.25717645657593 248.15753173828125 22880821.0
8
9 248.49250579527546 250.21517504611126 243.89877953877857 248.54037475585938 24868860.0

10
11
12
13
14
Fig. 1 Sample Data for an asset
15
16
17 5.1 Estimation of Parameters
18 We present the methods to estimate all the parameters from the available data.
19
20
21 5.1.1 Market Impact Matrix
22 We use the method described by Lorenzo et al., (2021) [10] for calculating the market
23 impact matrix using data. Historically the transaction costs are largely driven by
24 traded volumes of the assets. Let ωij be the correlation between the traded volumes
25 of asset i and asset j and it is given by
26
27 PT t
− voli )(voljt − volj )
t=1 (voli
28 ωij = qP qP ,
29 T t − vol )2 T t − vol )2
t=1 (voli i t=1 (volj j
30
31
32 where volit denotes volume of asset i traded at time t, and voli denotes average traded
33 volume of asset i and T denotes total number of trading days. For the data set used
34 in this paper T = 990. For each portfolio k, let Bk denotes a matrix whose (i, j)th
35 entry is ωij where i and j corresponds to asset i and asset j of portfolio k. To capture
36 the different impact of traded volumes correlation on the transaction costs per asset,
37 the matrix Bk is multiplied by a diagonal matrix diag(s̄) whose diagonal elements are
38 the components of the vector s̄. Consider a new matrix Ωk defined by
39
40 Ωk = diag(s̄)Bk .
41
42 In all our numerical experiments, we take the value of vector s̄ = |Ak | × 10−6 1, where
43 1 represents a vector of ones. Since the market impacts each firm differently, it is
44 reasonable to take different market impact matrix for each firm. For each portfolio
45
k ∈ J, the market impact matrix of firm i is defined by
46
47
Ωik = diag(s̄ + si )Bk = Ωk + diag(si )Bk .
48
49
50 15
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 In our numerical experiments, the components of the vector si are chosen randomly
1 from the interval (0, 10−6 ).
2
3 5.1.2 Expected return (loss) and covariance matrix
4
5 The return of any asset j is calculated using the open and close price of the asset j.
6 It is defined as
7 Sj (t + 1) − Sj (t)
Rj = ,
8 Sj (t)
9 where Sj (t) denotes the price of an asset at time t. We take one unit time as one week,
10 i.e., five working days. The loss rj of asset j is simply taken as −Rj , i.e.,
11
12 Sj (t) − Sj (t + 1)
13 rj = .
Sj (t)
14
15
The expected return (loss) is defined as sample mean of Rj (rj ) and covariance matrix
16
17 of the loss vector r is taken as a sample covariance matrix. To capture different beliefs
18 of different firms, in our numerical experiments, we multiply the sample mean vectors
19 and sample covariance matrices by a uniformly generated random number in the range
20 (0.95, 1.05) to generate E(Rki ), µik and Σik for all k ∈ J, i = 1, 2.
21
22 5.1.3 Other parameters
23
24 There are some other parameters which are required to solve mathematical program
25 (MP). For each k and i, we take αki = 0.9. The vector of maximum invest-
26 ment W i = (Wki )7k=1 , i = 1, 2, is taken as W 1 = (30, 40, 30, 50, 30, 40, 40), W 2 =
27 (30, 40, 30, 50, 30, 40, 40). In our numerical experiments, we take same maximum allow-
28 able loss, associated with each portfolio, for both the firms, i.e., d1k = d2k = dk for all
29 k ∈ J. The value of κ(αki ) corresponding to each uncertainty set and the value of upper
30 bound dk on the loss associated with each portfolio k are summarized in Table 5.
31
32 Table 5 Maximum allowable loss vector (dk )k∈J and κ(αik )
33
34 Uncertainty set d = (dk )k∈J κ(αik )
35 Uncertainty set 8 (3.3441, 4.5906, 3.9393, 6.0028, 2.9602, 5.9181, 3.2196) 3
36 Uncertainty set 9 (3.3441, 4.5906, 3.9393, 6.0028, 2.9602, 5.9181, 3.2196) 3
Uncertainty set 10 (4.5116, 6.1816, 5.2932, 8.0527, 3.9857, 8.0257, 4.3344) 4
37 Uncertainty set 12
38 (1.6278, 2.2518, 1.949, 2.9896, 1.4527, 2.8198, 1.5809) 1.53
with KL-divergence
39 Uncertainty set 12
(1.5344, 2.1245, 1.8407, 2.8256, 1.3706, 2.6512, 1.4917) 1.45
40 with χ2 -distance
41 Uncertainty set 12
(1.7796, 2.4587, 2.125, 3.2561, 1.586, 3.0938, 1.7258) 1.66
42 with Hellinger distance
Uncertainty set 12
43 with Variation distance
(1.371, 1.9018, 1.6512, 2.5386, 1.2271, 2.3561, 1.3357) 1.31
44 Uncertainty set 15
45 (3.0417, 4.1785, 3.5886, 5.4719, 2.6946, 5.3722, 2.9309) 2.741
with Wasserstein distance
46
47
48
49
50 16
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 5.2 Results
1
2 For data mentioned in Section 5.1, we solve the mathematical program (MP) using
3 nonlinear optimization solver fmincon in MATLAB. For each uncertainty set, fmin-
4 con solver converges to a point at which objective function value of (MP) is zero, i.e.,
5 it finds a Nash equilibrium of the game Gα . The convergence to a global maximum
6 value of (MP) is shown in Figure 2. The Nash equilibrium for each uncertainty set is
7 summarized in Table 6 and 7.
8
9
10
11
12 U1 & U2
13
17500 U3
14 U4 with chi
15
15000 U4 with HD
16 U4 with VD
17 U4 with KL
18 12500 U5
function value

19
20 10000
21
22 7500
23
24 5000
25
26
27
2500
28
29 0
30 0 200 400 600 800 1000 1200
31 iteration
32
33 Fig. 2 Convergence of Nash equilibrium
34
35
36
37 6 Conclusions
38
39 We formulate a portfolio selection problem of a fund manager who manages the invest-
40 ments of multiple firms as a distributionally robust chance constrained game. For
41 various moments based and statistical distance based uncertainty sets, we show that
42 there exists a Nash equilibrium and it can be computed by finding a global maximum
43 of a mathematical program. To perform numerical experiments, we selected 26 assets,
44 which are divided into 7 portfolios, from Indian stock market. We use real-world data
45 during October 10, 2018 to October 10, 2022 to estimate all the parameters of the port-
46 folio selection model. The global maximum of mathematical programming problem is
47 computed using fmincon nonlinear optimization solver in MATLAB.
48
49
50 17
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 Table 6 Nash Equilibrium of the firms
1 Uncertainty set 1 2
2  Nash equilibrium investment vector (x , x )
x1 = (14.1026, 0.0001, 14.1143), (0.0001, 33.1549, 0, 0.0003),
3
(16.1971, 9.0019, 0), (8.9185, 18.937, 0.0001, 0, 22.1432),
4 (1.4573, 19.5402, 6.9549), (3.7254, 27.929, 0.8935, 0.0001),
5 
U1 and U2 (8.8494, 0.0004, 0.0002, 29.2397)
6 
7 x2 = (14.3904, 0, 13.6681), (1.9237, 28.8504, 0.0001, 4.961),
8 (16.2853, 9.1825, 0), (6.0498, 22.971, 0.0001, 0, 19.9832),
(2.0446, 20.6747, 3.7782), (6.4677, 27.5149, 0.0001, 0),
9
10 (5.7472, 0.0004, 0.0001, 31.929)

11 x1 = (14.1159, 0.0003, 14.1148), (0.0007, 33.2204, 0.0002, 0.0016),
12 (16.2083, 9.0099, 0.0002), (9.0083, 19.0252, 0.0003, 0.0002, 21.9626),
13 (1.4482, 19.5662, 6.961), (3.7403, 28.107, 0.9057,
 0.0006),
14 U3 (8.853, 0.002, 0.0008, 29.3393)

15 x2 = (14.1159, 0.0003, 14.1148), (0.0007, 33.2204, 0.0002, 0.0016),
16 (16.2083, 9.0099, 0.0002), (9.0083, 19.0252, 0.0003, 0.0002, 21.9626),
17 (1.4482, 19.5662, 6.961), (3.7403, 28.107, 0.9057,
 0.0006),
18 (8.853, 0.002, 0.0008, 29.3393)
19 
x1 = (14.1208, 0.0003, 14.1155), (0.0007, 33.2458, 0.0002, 0.0016),
20
(16.2107, 9.0166, 0.0002), (9.0369, 19.064, 0.0003, 0.0002, 21.8956),
21 (1.4485, 19.5749, 6.961), (3.7408, 28.1766, 0.9159, 0.0006),
22 U5 (8.8558, 0.002, 0.0008, 29.3776)

23 
24 x2 = (14.4189, 0.0002, 13.6904), (1.8833, 28.9855, 0.0004, 4.8974),
25 (16.3004, 9.1993, 0.0002), (6.0507, 22.9908, 0.0006, 0.0002, 20.0976),
(2.0279, 20.6994, 3.8191), (6.4573, 27.8184, 0.0008, 0.0002),
26 
(5.7852, 0.0021, 0.0004, 32.0173)
27
28
29 Acknowledgement
30
31 The research was supported by DST/CEFIPRA Project No. IFC/4117/DST-CNRS-
32 5th call/2017-18/2.
33
34
35 Appendix A Multivariate Normality Test
36
We use Henze-Zirkler’s test statistic [21] in order to decide whether a given data
37
38 can be considered to follow a multivariate normal distribution. Consider a random
39 sample X1 , X2 , . . . , XN , where each Xi is a d dimensional random vector. Let xi =
40 (xij )dj=1 be an observed value of Xi , i = 1, 2, . . . , N . The test statistic of Henze-
41 Zirkler’s multivariate normality test is given by
42
N N N 2
43 1 X X − β2 Dij
− p X − β Di
− p
44 HZ = e 2 − 2 1 + β2 2 e 2(1+β2 ) + N 1 + 2β 2 2 (A1)
N i=1 j=1 i=1
45
46
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48
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50 18
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 Table 7 Nash Equilibrium of the firms
1 Uncertainty set Nash equilibrium investment vector (x1 , x2 )
2 
x1 = (14.1673, 0.0013, 14.1217), (0.0034, 33.4858, 0.001, 0.0079),
3
U4 with (16.2411, 9.0663, 0.0009), (9.3146, 19.4176, 0.0015, 0.0008, 21.2589),
4 (1.4468, 19.6613, 6.9602), (3.7399, 28.8775, 1.0251, 0.0026),
5 
(8.874, 0.0095, 0.0039, 29.7426)
6 
7 x2 = (14.4934, 0.0012, 13.7527), (1.7865, 29.3357, 0.0018, 4.7294),
8 Kl divergence (16.3381, 9.2473, 0.0011), (6.0886, 22.9906, 0.0028, 0.0009, 20.4249),
(2.0076, 20.7497, 3.9232), (6.4436, 28.6717,0.004, 0.001),
9
10 (5.8874, 0.01, 0.0017, 32.2497)

11 x1 = (14.1731, 0.0002, 14.1251), (0.0005, 33.5242, 0.0002, 0.0013),
12 U4 with (16.2475, 9.0691, 0.0001), (9.3404, 19.4636, 0.0002, 0.0001, 21.1946),
13 (1.4376, 19.6793, 6.9588), (3.7423, 28.9754, 1.0374,
 0.0004),
14 
(8.8794, 0.0015, 0.0006, 29.7967) ,
15 x2 = (14.4934, 0.0012, 13.7527), (1.7865, 29.3357, 0.0018, 4.7294),
16 (16.3381, 9.2473, 0.0011), (6.0886, 22.9906, 0.0028, 0.0009, 20.4249),
χ2 − distance
17 (2.0076, 20.7497, 3.9232), (6.4436, 28.6717,0.004, 0.001),
18 (5.8874, 0.01, 0.0017, 32.2497)
19 
x1 = (14.1587, 0.0002, 14.1225), (0.0005, 33.4481, 0.0002, 0.0013),
20
U4 with (16.2372, 9.0545, 0.0001), (9.2593, 19.3555, 0.0002, 0.0001, 21.3836),
21 (1.4434, 19.6498, 6.958), (3.7389, 28.7454, 1.0052, 0.0004),
22 (8.8729, 0.0015, 0.0006, 29.6798)

23 
24 x2 = (14.4782, 0.0002, 13.7459), (1.7984, 29.2812, 0.0003, 4.7556),
25 Hellinger distance (16.3335, 9.2348, 0.0002), (6.0817, 22.9801, 0.0005, 0.0001, 20.3867),
(2.0046, 20.7435, 3.9073), (6.447, 28.5103, 0.0006, 0.0002),
26 
(5.873, 0.0016, 0.0003, 32.2091)
27 
28 x1 = (14.1873, 0.001, 14.1247), (0.0027, 33.587, 0.0008, 0.0063),
29 U4 with (16.2567, 9.0808, 0.0007), (9.4142, 19.5539, 0.0012, 0.0006, 21.0256),
30 (1.4373, 19.7027, 6.9603), (3.7442, 29.1785, 1.0674,
 0.002),
31 (8.8821, 0.0074, 0.003, 29.8961)

32 x2 = (14.5234, 0.0009, 13.7813), (1.7404, 29.4835, 0.0014, 4.6628),
33 Variation Distance (16.3562, 9.2622, 0.0009), (6.1047, 22.9888, 0.0022, 0.0007, 20.5567),
34 (1.9892, 20.7739, 3.9717), (6.445, 29.037, 0.0033,
 0.0008),
35 (5.9348, 0.0078, 0.0014, 32.345)
36
37
38 where Dij = (xi −xj )T S −1 (xi −xj ), Di = (xi − x̄)T S −1 (xi − x̄), and x̄ = (x¯j )dj=1 , S =
39 (sjk )d,d
j=1,k=1 denote the sample mean vector and sample covariance matrix given by
40
41 N
42 1 X
x¯j = xij , ∀ j = 1, 2, . . . , d,
43 N i=1
44 N
45 1 X
sjk = (xij − x̄j )(xik − x̄k ), ∀ 1 ≤ j ≤ d, 1 ≤ k ≤ d.
46 N − 1 i=1
47
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50 19
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 The parameter β in (A1) represents the smoothing parameter [21] and β = 0.5 is used
1 in our case. If the value of test statistics HZ is significantly higher from the critical
2 values, we reject the null hypothesis and conclude that the data does not follow a
3 multivariate normal distribution. The critical values of HZ test statistic for different
4 values of significance level, dimension d and sample size N are given in Tables 3.1 -
5 3.3 of [21].
6 We perform the test for each portfolio listed in Table 4 by taking random sample
7
of size 990. We present the value of HZ corresponding to each portfolio in Table
8
A1 and from there we can see that the value of HZ is significantly higher than the
9
10 critical values given in Tables 3.1 - 3.3 of [21]. Hence, the hypothesis of the random
11
12 Table A1 Value of HZ test statistic and p-value
13
Portfolio HZ statistic p-value
14 Power gen & dist 6.78 1 × 10−47
15 Banks 6.95 4 × 10−129
16 Mining, refineries & oil 6.19 1 × 10−43
17 Automobile 4.30 1 × 10−184
18 IT - Software 11.77 6 × 10−75
19 Finance 8.18 3 × 10−150
20 FMCG 5.94 6 × 10−110
21
22 risk vector to be following multivariate normal distribution is rejected at 5% and 10%
23 significance level. We also present the p-value in the last column of Table A1 which is
24
almost zero. This implies that the hypothesis on data following multi-variate normal
25
distribution can be rejected at all significance levels.
26
27
28 Appendix B Proof of Lemma 3
29
30 Proof. 1. For the case of KL divergence
31 i i
32 e−θk xαk − 1
f (αki , θki ) = inf .
33 x∈(0,1) x−1
34
i i
35 Consider a function g(x) = e−θk xαk − 1 − (x − 1)αki , where x ∈ (0, 1). The function
36 g(x) is a concave function and its maximum value is attained at x∗ for which
37
g ′ (x∗ ) = 0, where g ′ (x) is the first derivative of the function g(x). It is easy to check
38 i i

39 that x∗ satisfies e−θk (x∗ )αk −1 = 1. This implies that g(x∗ ) = (x∗ − 1)(1 − αki ) < 0.
40 Therefore,
41 g(x) < 0, ∀ 0 < x < 1
i i
42 =⇒ e−θk xαk − 1 − (x − 1)αki < 0, ∀ 0 < x < 1
43 i i
44 e−θk xαk − 1
=⇒ > αki , ∀ 0 < x < 1
45 x−1
46 i i
e−θk xαk − 1
47 =⇒ inf > αki
x∈(0,1) x−1
48
49
50 20
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 2. For the case of modified χ2 -distance
1 p
2 i i i (θki )2 + 4θki (αki − (αki )2 ) − (2αki − 1)θki
3 f (αk , θk ) − αk = .
2θki + 2
4
5 Consider
6
7 (θki )2 + 4θki (αki − (αki )2 ) − (2αki − 1)2 (θki )2
8
= (θki )2 + 4θki αki − 4θki (αki )2 − (θki )2 + 4αki (θki )2 − 4(θki )2 (αki )2
9
10 = 4θki αki (1 − αki )(1 + θki )
11
1
12 Since 2 ≤ αki ≤ 1 and θki > 0,
13
14 (θki )2 + 4θki (αki − (αki )2 ) ≥ (2αki − 1)2 (θki )2 ,
15
16 which in turn implies that
17
18 q
19 (θki )2 + 4θki (αki − (αki )2 ) − (2αki − 1)θki ≥ 0.
20
21 Therefore, f (αki , θki ) ≥ αki .
22 3. For the case of Hellinger distance
23 √
24 B 2 − 4C
−B +
25 f (αki , θki ) = , (B2)
2
26
2
27 i 2 i 2

(2−θk ) (2−θk )
where B = −(2 − (2 − θki )2 )(1 − αki ) − 2 , C = 4 − 1 + αk
i
, 0 < θki <
28 √
29 2 − 2. It follows from (B2) that
30 √
31 B 2 − 4C − (B + 2αki )
32 f (αki , θki ) − αki = . (B3)
2
33
34 We first show that B + 2αki > 0. Let z = (2 − θki )2 . From the bounds on θki , we
35 (2αi −1)(4−z)
have 2 < z < 4. From the expression of B, we have B + 2αki = k
2 > 0.
36 Consider a function g(αki ) = (B 2 − 4C) − (B + 2αki )2 and from the expression of B
37
and C, we have
38
39 (2αki − 1)2
40 g(αki ) = αki (1 − αki )z(4 − z) − (4 − z)2 .
41 4
42 The function g(αki ) is a concave function of αki and its maximum value is attained
43
at αki = 21 because g ′ ( 12 ) = 0. It is clear that g( 12 ) > 0 and g(1) < 0. Therefore,
44
g(αki ) ≥ 0 for all 12 ≤ αki ≤ α∗ , where α∗ is such that g(α∗ ) = 0. The value of such
45
46 α∗ is given by
4 − θki
47 α∗ = .
48 4
49
50 21
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 This implies that
1  
2 p 1 ∗
3 (B 2 − 4C) ≥ (B + 2αki ), ∀ αki ∈ ,α .
2
4
5 Hence, from (B3) f (αki , θki ) ≥ αki , ∀ αki ∈
1 ∗

2, α .
6
7
8
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Cover Letter Click here to access/download;Attachment to Manuscript;cover
letter.pdf

Dear Editors,

Sub: Online submission of a paper for possible publication in Annals of Operations Research

We have uploaded a copy of our paper `Distributionally robust chance-constrained game model for
portfolio selection in financial market' by Vikas Vikram Singh and Varre Harsha Vardhan for
possible publication in Annals of Operations Research under special issue “Recent Trends in
Operations Research and Game Theoretic Approach in Decision Making”. This work is not under
submission anywhere else.

The corresponding author is Vikas Vikram Singh with contact details:

Email address: vikassingh@iitd.ac.in alternatively,
vikasstar@gmail.com

Postal Address: Department of Mathematics, IIT Delhi, New Delhi, Hauz Khas, 110016, India.

Please acknowledge receipt of this submission.

Sincerely,
Vikas Vikram Singh