This article was downloaded by: [McGill University Library]

On: 03 September 2012, At: 03:48

Publisher: Taylor & Francis
Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered
office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

Optimization: A Journal of
Mathematical Programming and
Operations Research
Publication details, including instructions for authors and
subscription information:
http://www.tandfonline.com/loi/gopt20

An integrated approach for stock

evaluation and portfolio optimization
a a
Şafak Kırış & Ozden Ustun
a
Department of Industrial Engineering, Central Campus,
Dumlupinar University, Kutahya, Turkey

Version of record first published: 11 Jan 2012

To cite this article: Şafak Kırış & Ozden Ustun (2012): An integrated approach for stock evaluation
and portfolio optimization, Optimization: A Journal of Mathematical Programming and Operations
Research, 61:4, 423-441

To link to this article: http://dx.doi.org/10.1080/02331934.2011.644285

PLEASE SCROLL DOWN FOR ARTICLE

Full terms and conditions of use: http://www.tandfonline.com/page/terms-and-

conditions

This article may be used for research, teaching, and private study purposes. Any
substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,
systematic supply, or distribution in any form to anyone is expressly forbidden.

The publisher does not give any warranty express or implied or make any representation
that the contents will be complete or accurate or up to date. The accuracy of any
instructions, formulae, and drug doses should be independently verified with primary
sources. The publisher shall not be liable for any loss, actions, claims, proceedings,
demand, or costs or damages whatsoever or howsoever caused arising directly or
indirectly in connection with or arising out of the use of this material.
 Optimization
Vol. 61, No. 4, April 2012, 423–441

An integrated approach for stock evaluation

and portfolio optimization
Safak K|r|s * and Ozden Ustun

Department of Industrial Engineering, Central Campus, Dumlupinar University,

Kutahya, Turkey
(Received 12 January 2011; final version received 17 November 2011)
Downloaded by [McGill University Library] at 03:48 03 September 2012

Portfolio selection problems consist of two phases: stock evaluation and

portfolio optimization. This article presents an integrated approach to
solve these sub-problems. Stock evaluation problem includes vague
parameters, and fuzzy set is a useful tool to cope with uncertainty caused
by both the financial markets and the behaviour of the investors’ decisions.
In the first phase, a fuzzy multi-criteria decision-making approach is
proposed to evaluate 30 stocks taken from ISE30. Then, a multi-objective
portfolio optimization model is presented in the second phase. Markowitz’s
mean-variance model is combined with the objective of the expected
performance value of portfolio and cardinality constraints. This
multi-objective real-life problem was solved by using the reservation level
driven Tchebycheff procedure. Finally, the most preferred non-dominated
solutions were determined by considering investors’ preferences.
Keywords: fuzzy MCDM; fuzzy AHP; multi-objective programming;
portfolio optimization; reservation level driven Tchebycheff procedure

1. Introduction
Making investment decisions is a hard process for investors in an uncertain
environment due to the variability of the economic conditions. Decision-making
tools are required to support the investors while making decisions for financial
instruments to cope with the uncertainty and vagueness. According to Zadeh [44,45],
it is very difficult for conventional quantification to reasonably express those
situations; so, the notion of a linguistic variable is necessary in such situations. There
are several models to select a portfolio in the literature. The earliest study to
construct a portfolio is the mean-variance model proposed by Markowitz [18]. This
model is based on normal distribution of expected stock returns. Uncertainty
increases in crisis environment; therefore, using statistical indicators becomes
inadequate to obtain acceptable results. In practice, an investor deals with a set of
local criteria based explicitly or implicitly on the different financial ratios and stock
returns. Since the preferences of the investors concerned with such criteria often are
presented in verbal form, the problem is usually charged by the uncertainty of

*Corresponding author. Email: skiris@dpu.edu.tr

ISSN 0233–1934 print/ISSN 1029–4945 online

 2012 Taylor & Francis
http://dx.doi.org/10.1080/02331934.2011.644285
http://www.tandfonline.com
 424 S. K|r|s and O. Ustun

subjective type. One of the powerful tools to cope with uncertainty caused by both
the financial markets and the behaviour of the investors’ decisions is fuzzy set theory.
Additionally, the portfolio selection problem is a multi-criteria decision-making
(MCDM) problem. In the literature, there are few studies related with the fuzzy
MCDM for the portfolio selection problem. Tiryaki and Ahlatcioglu [35] proposed a
new fuzzy ranking and weighting algorithm and applied their algorithm in Istanbul
Stock Exchange (ISE, www.ise.gov.tr). Tiryaki and Ahlatcioglu [36] proposed the
revised constrained fuzzy analytic hierarchy process (FAHP) method to portfolio
selection problem in ISE. Sevastjanov and Dymova [27] suggest a new method for
the stock ranking based on the multiple criterion decision making and optimization.
In this study, FAHP and fuzzy simple additive weighting (FSAW) approaches
were used to evaluate the performances of the stocks taken from ISE30 between 2006
Downloaded by [McGill University Library] at 03:48 03 September 2012

and 2008. In the second phase, a multi-objective portfolio optimization model was
built. Markowitz’s mean-variance model was combined with the objective of the
expected performance value of portfolio and cardinality constraints. The perfor-
mance values of stocks were obtained from the first phase. This multi-objective
real-life problem was solved by using reservation level driven Tchebycheff procedure
(RLTP).
In recent years, portfolio optimization models that consider more criteria than
the expected return and variance of objectives of the Markowitz model have become
popular. The multidimensional nature of the portfolio selection problem has been
emphasized by many researchers, from both the fields of finance and MCDM
[2,11,28,32–34,41,43,46,48]. However, research activities regarding the more specific
level of applying the multi-objective optimization approaches in the field of portfolio
selection have been rather limited. The studies of Roman et al. [24], Mansini et al.
[17], Ehrgott et al. [9], Ogryczak [22], Zopounidis et al. [47] and Wierzbicki [39],
Xidonas et al. [42], Ustun and Kasimbeyli [37], and Chang et al. [6] are the most
representative ones.
Over the past decade, various interactive methods and decision support systems
have been developed to deal with multi-objective programming (MOP) problems.
In the same period, a variety of scalarization methods for finding efficient solutions
of MOPs have been developed. Although some of the methods work well only on
problems with concave objective functions and a convex feasible region, most of the
real life problems have discrete variables, so the set of non-dominated solutions for
these problems is not convex. Weighted sums of the objective functions do not
provide a way for reaching every non-dominated solution. Besides supported
non-dominated solutions, there exist unsupported ones – solutions that are
dominated by convex combinations of other non-dominated solutions.
Tchebycheff metric-based scalarizing programs have the advantage over
weighted-sums programs of being able to reach not only supported but also
unsupported non-dominated solutions. A general characterization for the
non-dominated solution set based on the Tchebycheff metric is first proposed by
Bowman [3]. Wierzbicki [40] produced seminal research on reference point methods,
including an investigation of the characteristics of various achievement functions for
allowing the search for attractive non-dominated solutions to be controlled by
reference points. Interactive methods using Tchebycheff (interactive weighted
Tchebycheff procedure, IWTP) or other achievement scalarizing functions have
been developed for MOP problems by Steuer and Choo [31], Steuer [29],
 Optimization 425

Karaivanova et al. [13], Vassilev and Narula [38], Reeves and Macleod [23], Alves
and Climaco [1], Korhonen and Laakso [15], Nakayama and Sawaragi [21],
Buchanan [4], Jaszkiewicz and Slowinski [12], Miettinen and Makela [19], among
others. In particular, Steuer and Choo [31] showed that by means of the
lexicographic weighted Tchebycheff program every efficient solution of the
non-concave MOP was uniquely computable and all objective function values
returned by this program were non-dominated. An alternative approach to reduce
the set of non-dominated solutions within a Tchebycheff framework is RLTP
proposed by Reeves and Macleod [23]. This approach uses reservation level (RL)
based upon decision-maker responses for objective space reduction. RLTP is shown
to be more flexible than the original IWTP, while producing solutions of similar
quality [8,23].
Downloaded by [McGill University Library] at 03:48 03 September 2012

After a brief discussion of MOP methods, RLTP is suggested as the most suitable
method to solve the multi-objective mixed-integer nonlinear problem (MOMINLP)
model. RLTP is more flexible than the other approaches and enables to backtrack
and change previous inconsistent decisions.
There are many studies conducted which examined either stock evaluation
problems or portfolio optimization problems. Different from the previous studies,
this study is varied with the integration of stock evaluation and portfolio
optimization. Since the success of the portfolio optimization depends on the
performance of the stock evaluation process, stock evaluation and portfolio
optimization problems are required to be solved together for more satisfactory
solutions. Thus, in the study at issue, an integrated approach was proposed to solve
these problems and applied to stock evaluation and portfolio optimization problem
for ISE30 between 2006 and 2008 in the economic crisis environment.
In the next section, the abovementioned phases of integrated approach are
defined which are followed by an application of the integrated approach to ISE30 in
Section 3. Finally, the issue is concluded with some remarks in Section 4.

2. Integrated approach for stock evaluation and portfolio optimization

The integrated approach proposes a two-phase mathematical model that consists of
fuzzy MCDM approach and MOMINLP model for stock evaluation and portfolio
optimization. The flow chart of the integrated approach is given in Figure 1.

2.1. Stock evaluation phase: fuzzy MCDM approach

The concept of combining the fuzzy theory and MCDM is referred to as fuzzy
MCDM (FMCDM). The MCDM problems are first classified into distinct aspects.
Different alternatives/strategies and the criteria are defined based on various points
of view of the stakeholders. Thus, a finite set of alternatives/strategies can be
evaluated by means of multi-criteria. Choosing a suitable method to measure the
criteria can help the evaluators and analysts to process the cases to be evaluated and
determine the best alternative to be decided. Like most cases of evaluation, a number
of criteria have to be considered for performance evaluation. Consequently, stock
evaluation and portfolio selection can be regarded as an MCDM problem. In this
study, an FMCDM approach of stock evaluation and portfolio selection is proposed
 426 S. K|r|s and O. Ustun

Fuzzy AHP Build MOMINLP model

Define the criteria and sub-criteria

RLTP Step 1: Initialization

Determine alternative stocks

Step 2: Sampling
Pairwise comparisons of criteria
and sub-criteria by investors
Step 3: Solution

Synthetic pairwise comparison of

criteria and sub-criteria

Calculate the criteria and Are investors satisfied?

sub-criteria weights
Downloaded by [McGill University Library] at 03:48 03 September 2012

Fuzzy SAW Yes No

Alternatives measurement

Step 4: Adjustment
Fuzzy synthetic decision

Determine BNP values Pareto optimal solution

Stock evaluation phase Portfolio optimization phase

Figure 1. The flow chart of the integrated approach.

to establish a performance evaluation model for investors. The global steps of the
proposed method are as follows: (1) screen performance indexes of the stocks to
determine criteria for constructing a hierarchical framework of performance
evaluation, (2) use FAHP to find the fuzzy weights of the criteria by subjective
opinion, (3) apply fuzzy SAW to rank the performances of the stocks and (4)
construct a portfolio by using the performances of the stocks.
This methodology is also discussed for tenders selection problem in the study of
Hsieh et al. [10].

2.1.1. Fuzzy analytic hierarchy process

In this study, an FAHP approach was used to determine the criteria weights from
subjective judgements of each decision maker. Although the analytic hierarchy
process (AHP) developed by Saaty [25] is a very useful decision analysis tool in
dealing with multiple criteria decision-making problem, in this study Buckley’s [5]
method, FAHP, to fuzzify hierarchical analysis which is an extended version of
Saaty’s AHP to the case where the evaluators are allowed to use fuzzy ratios in place
of exact ratios was employed. Concepts for fuzzy hierarchical evaluation are briefly
given as follows.

2.1.1.1. Fuzzy number. Fuzzy numbers are subset of real numbers, representing the
expansion of the idea of the confidence interval. According to the definition of
 Optimization 427

Table 1. Membership function of linguistic scale.

Fuzzy number Linguistic scales Scale of fuzzy number

1~ Equally important (Eq) (1, 1, 3)

3~ Weakly important (Wk) (1, 3, 5)
5~ Essentially important (Es) (3, 5, 7)
7~ Very strongly important (Vs) (5, 7, 9)
9~ Absolutely important (Ab) (7, 9, 9)

Laarhoven and Pedrycz [16], a triangular fuzzy number (TFN) should possess the
following basic features.
Downloaded by [McGill University Library] at 03:48 03 September 2012

A fuzzy number A~ on R to be a TFN if its membership function

A~ ðxÞ: R ! ½0, 1 is equal to
8
>
> ðx  LÞ=ðM  LÞ, L  x 5 M, L 6¼ M,
<
1, x ¼ M,
A~ ðxÞ ¼ ð1Þ
>
> ðU  xÞ=ðU  MÞ, M 5 x  U, M 6¼ U,
:
0, otherwise,
where L and U stand for the lower and upper bounds of the fuzzy number A, ~
respectively, and M is for the modal value. The TFN can be denoted by
A~ ¼ ðL, M, UÞ and the following are the operational laws of two TFNs
A~ 1 ¼ ðL1 , M1 , U1 Þ and A~ 2 ¼ ðL2 , M2 , U2 Þ, as shown in [7]:
Addition of a fuzzy number : A~ 1  A~ 2 ¼ ðL1 , M1 , U1 Þ  ðL2 , M2 , U2 Þ
ð2Þ
¼ ðL1 þ L2 , M1 þ M2 , U1 þ U2 Þ:

Subtraction of a fuzzy number : A~ 1 A~ 2 ¼ ðL1 , M1 , U1 Þ  ðL2 , M2 , U2 Þ

ð3Þ
¼ ðL1  L2 , M1  M2 , U1  U2 Þ:

Multiplication of a fuzzy number : A~ 1  A~ 2 ¼ ðL1 , M1 , U1 Þ  ðL2 , M2 , U2 Þ

¼ ðL1 L2 , M1 M2 , U1 U2 Þ
for Li 4 0, Mi 4 0, Ui 4 0: ð4Þ

Division of a fuzzy number 1 : A~ 1 ;A~ 2 ¼ ðL1 , M1 , U1 Þ1ðL2 , M2 , U2 Þ

¼ ðL1 =L2 , M1 =M2 , U1 =U2 Þ
for Li 4 0, Mi 4 0, Ui 4 0: ð5Þ

Reciprocal of a fuzzy number : A~ 1

1 ¼ ðL1 , M1 , U1 Þ
1

¼ ð1=U1 , 1=M1 , 1=L1 Þ

for Li 4 0, Mi 4 0, Ui 4 0: ð6Þ

2.1.1.2. Linguistic variables. In this article, the computational technique is based on

the following fuzzy numbers defined by Mon et al. [20] as in Table 1.
 428 S. K|r|s and O. Ustun

Linguistic variables are primarily used to assess the linguistic ratings given by
investors for pairwise comparisons of the importance of criteria in FAHP.
Performances of alternatives for each criterion are also used as a way to measure
by using linguistic terms as ‘very good’, ‘good’, ‘fair’, ‘poor’ and ‘very poor’. The
procedure for determining the evaluation criteria weights by FAHP can be
summarized as follows:
Step 1 Construct pairwise comparison matrices among all the elements/criteria in
the dimensions of the hierarchy system and assign linguistic terms to the pairwise
comparisons by asking which is more important of each two element/criteria.
Step 2 Use geometric mean technique to define the fuzzy geometric mean and fuzzy
weights of each criterion by Buckley [5] are as follows:
Downloaded by [McGill University Library] at 03:48 03 September 2012

r~i ¼ ða~ i1  a~ i2  . . .  a~ in Þ1=n ,

ð7Þ
w~ i ¼ r~i  ð~r1  . . .  r~n Þ1 ,

where a~in is a fuzzy comparison value of criterion i to criterion n, thus, r~i is geometric
mean of fuzzy comparison value of criterion i to each criterion, w~ i is the fuzzy weight
of the ith criterion, can be indicated by a TFN, w~ i ¼ ðLwi , Mwi , Uwi Þ, where Lwi,
Mwi and Uwi are the lower, middle and upper values of the fuzzy weight of the ith
criterion, respectively.

2.1.2. Fuzzy SAW

FSAW can be given as follows:
(1) Alternative measurement: Using the measurement of linguistic variables to
demonstrate the criteria performance by expressions such as ‘very good’,
‘good’, ‘fair’, ‘poor’ and ‘very poor’, the investors are asked for conductance
their subjective judgements. Each linguistic variable can be indicated by a
TFN within the scale range 0–100. Take E~ kij to indicate the fuzzy performance
value of investor k towards alternative i under criterion j, and all of the
evaluation criteria will be indicated by E~ kij ¼ ðLEkij , MEkij , UEkij Þ. This study
uses the notion of average value to integrate the fuzzy judgement values of m
investors, that is,

E~ ij ¼ ð1=mÞ  ðE~ 1ij  E~ 2ij  . . .  E~ m

ij Þ: ð8Þ

The end-point values LEij, MEij and UEij of the average fuzzy number E~ ij
can be solved by Buckley’s [5] method, that is
! ! !
Xm Xm X
m
LEij ¼ LEkij m; MEij ¼ MEkij m; UEij ¼ UEkij m: ð9Þ
k¼1 k¼1 k¼1

(2) Fuzzy synthetic decision: According to each abovementioned criterion weight

w~ j derived by FAHP, the criteria weight vector w~ ¼ ðw~ 1 , . . . , w~ j , . . . , w~ n Þt can
be obtained, whereas the fuzzy performance matrix E~ of each of the
 Optimization 429

alternatives can also be obtained from the fuzzy performance value of each
alternative under n criteria, that is, E~ ¼ ðE~ ij Þ.
The approximate fuzzy number R~ i , of the fuzzy synthetic decision of each
alternative can be shown as R~ i ¼ ðLRi , MRi , URi Þ, where LRi, MRi and URi
are the lower, middle and upper synthetic performance values, respectively,
of the alternative i, that is,
X
n X
n X
n
LRi ¼ LEij  Lwj ; MRi ¼ MEij  Mwj ; URi ¼ UEij  Uwj : ð10Þ
j¼1 j¼1 j¼1

(3) Ranking the fuzzy number: In this study, the procedure of defuzzification is to
Downloaded by [McGill University Library] at 03:48 03 September 2012

locate the best non-fuzzy performance (BNP) value which is a simple and
practical method and there is no need to bring in the preferences of any
investors. The BNP value of the fuzzy number R~ i can be found by the
following equation:

BNPi ¼ ½ðURi  LRi Þ þ ðMRi  LRi Þ=3 þ LRi 8i: ð11Þ

In terms of the calculated BNP for each of the alternatives, the ranking of the
stocks for constructing the portfolio can be obtained.

2.2. Portfolio optimization phase

2.2.1. MOMINLP model
The objective functions and the constraints of the model are as follows:
Notations
Indices
i ¼ 1, . . . , n index of stocks
Parameters
i monthly mean return of stock i
BNPi best non-fuzzy performance value of stock i
 ij covariance between stock i and stock j
li minimum proportion of stock i if purchased
ui maximum proportion of stock i if purchased
m number of stocks in portfolio
Decision variables
xi proportion of stock i in portfolio
yi 1 if a stock is selected for portfolio, 0 otherwise
Objective functions
Covariance – The covariance of portfolio should be minimized:
n X
X n
min f1 ðxÞ ¼ ij xi xj ð12Þ
i¼1 j¼1
 430 S. K|r|s and O. Ustun

Mean return – The mean return of portfolio should be maximized:

X
n
max f2 ðxÞ ¼ i xi ð13Þ
i¼1

BNP – The best non-fuzzy performance value of portfolio should be maximized:

X
n
max f3 ðxÞ ¼ BNPi xi ð14Þ
i¼1

Constraints
The constraints of the problem are formulated as follows:
Proportion constraint: The sum of proportions of the stocks in portfolio should be
Downloaded by [McGill University Library] at 03:48 03 September 2012

equal to 1.
X
n
xi ¼ 1 ð15Þ
i¼1

Cardinality constraints: The number of stocks in portfolio should be equal to m.

li yi  xi  ui yi i ¼ 1, 2, . . . , n

X
n
yi ¼ m ð16Þ
i¼1

Non-negativity and binary constraints:

xi  0 i ¼ 1, 2, . . . , n
ð17Þ
yi ¼ 0 or 1 integer i ¼ 1, 2, . . . , n:
Let S be the feasible region in decision space of the MOMINLP. The first
objective is transformed to maximization form. A point x0 2 S is called an efficient
solution of MOMINLP if there is no other point x 2 S such that ft(x)  ft(x0) for
t ¼ 1, 2, 3 with strict inequality holding for at least one component. The image f(x0) of
an efficient solution x0 in the objective space is called a non-dominated solution.
MOMINLP problem has to be solved with a multi-objective optimization
method to construct the most preferred portfolio. To include the decision makers to
the decision-making process and to consider the reservation levels, one of the
interactive approaches, RLTP, is used.

2.2.2. Reservation level driven Tchebycheff procedure

Tchebycheff metric-based approaches have become popular for sampling the set of
non-dominated solutions in an interactive search for a most preferred solution in
multi-objective decision-making situations. These approaches systematically reduce
the set of non-dominated solutions which remain available for identification and
selection from one iteration to the next. One of the Tchebycheff metric based
approaches is RLTP. This approach uses RL based upon decision-maker responses
for objective space reduction. Because of non-convex nature of the problem at issue
and RL, the RLTP method is a more appropriate approach.
 Optimization 431

RLTP can be described in four steps as follows:

Step 1 Initialization
Objective functions should be in maximization form. The minimization forms
have to be transformed to a maximization form.
Specify the number of solutions, P, to be presented to the investors at each
iteration, where P should be greater or equal to the number of the objective
functions.
Compute a reference objective vector, z**, where z** ¼ max{ft(x)|x 2 S} þ "t, and
the "t values are small positive scalars, for their use in solving the Tchebycheff
programs.
Set RLt ¼ 1, t ¼ 1, 2, 3 where RLt is the RL for the tth objective.
Downloaded by [McGill University Library] at 03:48 03 September 2012

Besides, the maximum number of iterations could be prespecified, if desired, as

part of the initialization process.
Step 2 Sampling
Generate a group of 2P dispersed weight vectors from the set
( )
X
3
3
D ¼  2 R jt 2 ð0, 1Þ, t ¼ 1 : ð18Þ
t¼1

Step 3 Solution
Solve the associated Tchebycheff program for each weight vector
( )
X3
min    zt
t¼1
s:t:
  t ðzt  zt Þ, t ¼ 1, 2, 3, ð19Þ
ft ðxÞ ¼ zt , t ¼ 1, 2, 3,
zt  RLt , t ¼ 1, 2, 3,
x 2 S,
where  is a small positive scalar. Show the P most different of the resulting objective
vectors to the investors. If the investors wish to continue to search for an improved
solution, proceed to Step 4. Otherwise, have the investors select their current most
preferred solution and stop.
Step 4 Adjustment
Classify the current solutions into more preferred and less preferred subsets,
adjust the RL and return to Step 2.
Investors participate more actively in this procedure only at Step 4 of each
intermediate iteration and Step 3 of the final iteration. At these iterations, the
investors try to partition current solutions into more preferred and less preferred
subsets and choose most preferred solution. RL are adjusted based upon the
objective values of the current more preferred and less preferred solutions. The RL
can be adjusted automatically by the RLTP, rather than by the investors, as a default
option. The following default objective space reduction is suggested by Reeves and
Macleod [23].
 432 S. K|r|s and O. Ustun

Goal Evaluation of stocks

Criteria C1:Investor's objectives C2:Financial structure C3: Sustainable development

structure

C11: Negative deviation C21: Net profit/loss C31: R&D

Sub-criteria C12: Positive deviation C22: Equity capital C32: Quality
management system
C13: Mean return C23: Market
price/book value C33: Firm image
C14: Cost

Figure 2. The hierarchical structure of evaluation.

Downloaded by [McGill University Library] at 03:48 03 September 2012

Let CSWVt be the worst values for the tth objective over the set of all current
solution and MPWVt be the worst values for the tth objective over the subset of most
preferred current solutions. RLt could be specified as Equation (20), where r is a
reduction factor between 0 and 1. Smaller values for r would correspond to faster
rates of objective space reduction.

MPWVt  rðMPWVt  CSWVt Þ: ð20Þ

In addition, investors can choose the values of RL in the interactive solution

process, if they need. On the other hand, the methods for generating dispersed weight
vectors at step 2 can be found in Steuer’s studies [29,30]. The suggested range for the
 parameter at step 3 is from 0.0001 to 0.01 given in Steuer [30]. Methods for
reducing the number of trial solutions generated at step 3 down to the P most
different are discussed in Steuer [29,30].

3. An application for ISE30

In this section, 30 stocks taken from ISE30 between the years 2006 and 2008 are
evaluated. The stocks are AKBNK, AKGRT, ARCLK, AYGAZ, BAGFS,
DOHOL, DYHOL, ECILC, EREGL, GARAN, GSDHO, HURGZ, IHLAS,
ISCTR, ISGYO, KRDMD, KCHOL, PETKM, PTOFS, SAHOL, SKBNK, SISE,
TEBNK, TSKB, TCELL, TUPRS, THYAO, ULKER, VAKBN, and YKBNK.
K|r|s and Ustun [14] studied on nine stocks taken from ISE with fuzzy MCDM. In
this study, the number of stocks was increased to 30 and an integrated approach was
proposed.
The criteria and sub-criteria of the problem were defined by investors and
hierarchical structure was built as given in Figure 2.
Firstly, criteria (C1, C2, and C3) were evaluated by two investors with linguistic
scales and they were turned into fuzzy numbers. The pairwise comparisons were
given in Table 2. The geometric mean method suggested by Buckley (1985) was used
to obtain the synthetic pairwise comparison matrix and the comparison is given in
Table 3.
 Optimization 433

Table 2. Pairwise comparisons.

Downloaded by [McGill University Library] at 03:48 03 September 2012

Table 3. Synthetic pairwise comparison for dimensions.

C1 C2 C3

C1 1.000 (1.732; 3.872; 5.916) (3.872; 5.916; 7.937)

C2 (0.169; 0.258; 0.577) 1.000 (0.447; 1; 2.236)
C3 (0.125; 0.169; 0.258) (0.447; 1; 2.236) 1.000

Fuzzy geometric means (ri) and then fuzzy weights (wi) were calculated as follows
by using geometric mean technique by Buckley (1985).

r1 ¼ ð1:885972774; 2:840271682; 3:607736129Þ, w1 ¼ ð0:341087928; 0:704789746; 1:340087495Þ

r2 ¼ ð0:422824676; 0:636773219; 1:088866889Þ, w2 ¼ ð0:076470029; 0:158009967; 0:404457768Þ
r3 ¼ ð0:38336716; 0:552911122; 0:832683178Þ, w3 ¼ ð0:069333933; 0:137200287; 0:309298761Þ

The BNP values of the fuzzy weights of each dimension were determined by
centre of area method, respectively, as 0.795322, 0.212979 and 0.171944. Similar
operations like pairwise comparison, calculation of weights and BNP values were
done for each defined criteria. The calculation results are given in Table 4.
Each investor evaluated the alternatives under the defined criteria based on the
expressions given in Table 5 and investors’ expressions are given, respectively, in
Table 6 as Investor 1, Investor 2.
The average fuzzy performance values were calculated by using the ranges given
in Table 5 based on Equation (9). Then, each alternative’s synthetic performance
values were computed by using fuzzy multiplication and addition functions with
criteria’s weights as in Table 7.
After calculations of synthetic performance values, fuzzy numbers had to be
turned into non-fuzzy forms. The BNP values were also used in this phase. The
results are given in Table 7. The alternatives were ranked based on BNP values.
These ranks are also indicated in Table 7.
It can be seen from Table 7 that KRDMD is the best alternative considering the
two investors’ weights. On the other hand, HURGZ has the poorest performance
value.
 434 S. K|r|s and O. Ustun

Table 4. Weights of dimensions and criteria.

Criteria and sub-criteria Local weights Overall weights BNP

Investor’s objectives (0.341; 0.704; 1.340) 0.795

Negative deviation (0.058; 0.155; 0.408) (0.019; 0.109; 0.547) 0.225
Positive deviation (0.093; 0.217; 0.598) (0.032; 0.153; 0.801) 0.329
Mean return (0.221; 0.558; 1.240) (0.075; 0.393; 1.662) 0.710
Cost (0.033; 0.068; 0.207) (0.011; 0.048; 0.278) 0.112
Financial structure (0.076; 0.158; 0.404) 0.212
Net profit/loss (0.332; 0.685; 1.320) (0.025; 0.108; 0.534) 0.222
Equity capital (0.051; 0.092; 0.233) (0.003; 0.014; 0.094) 0.037
Market price/book value (0.097; 0.221; 0.521) (0.007; 0.035; 0.210) 0.084
Sustainable development structure (0.069; 0.137; 0.309) 0.171
R&D (0.089; 0.155; 0.393) (0.006; 0.021; 0.121) 0.049
Downloaded by [McGill University Library] at 03:48 03 September 2012

Quality management system (0.252; 0.552; 0.584) (0.017; 0.075; 0.180) 0.091
Firm image (0.193; 0.292; 0.890) (0.013; 0.040; 0.275) 0.109

Table 5. Range for the linguistic variables of investors.

Investor/expression Very poor Poor Fair Good Very good

1 (0; 0; 30) (30; 35; 40) (35; 50; 60) (55; 70; 80) (80; 100; 100)
2 (0; 0; 35) (30; 38; 45) (45; 55; 70) (60; 80; 90) (85; 100; 100)

After obtaining the BNP values of the stocks, the first phase of the integrated
approach was completed. In the second phase, these BNP values given in Table 7
were used as third objective’s coefficients. The mean returns of stocks and covariance
matrix were calculated by using the monthly data from ISE30 between the years 2006
and 2008 (Istanbul Stock Exchange, www.ise.gov.tr). Then, MOMINLP model was
constructed for ISE30. In this model, the investors chose the minimum and
maximum proportions of stock i as 0.05 and 0.5, respectively. Besides, the investors
chose the number of stocks in portfolio as 5.
RLTP was applied to the MOMINLP contained three objectives with cardinality
constraints. The first objective in MOMINLP was transformed to maximization
form by multiplying 1. An additive utility function was used to simulate investors’
preferences with weights of 0.33, 0.33 and 0.33. In this approach, the RLTP was not
restricted to select only a single most preferred solution at each iteration and the
 ¼ 0.001 was used at step 3.
The mathematical models in this study were solved by using LINGO 11.0 solver
[26]. There was not any limitation for the number of variables, integer variables and
constraints. Also, LINGO 11.0 can solve linear, non-linear, integer and mixed
integer programming models.
Although the RLTP allowed investors the flexibility of specifying RL individ-
ually for any objectives, RL were tightened automatically at each iteration at
prespecified constant rates by using Equation (20). Eight solutions were presented to
the simulated investors at each iteration for a total of two iterations. Ideal solution
 Downloaded by [McGill University Library] at 03:48 03 September 2012

Table 6. Range for the linguistic variables of investors.

Market
Negative Positive Mean Net Equity price/book Firm
Firm deviation deviation return Cost profit/loss capital value R&D QMS image

AKBNK F, G G, G F, G P, VG F, VP F, VP P, P P, P G, G VG,VG
AKGRT P, P VG, VG F, G F, VG G, VP VG, P VG, VG P, P G, G VG, VG
ARCLK P, P F, P VP, P F, VG F, VP F, VP G, G G, G VG, VG VG, VG
AYGAZ F, G P, VP P, F F, VG G, P VG, F G, G G, G VG, VG VG, VG
BAGFS P, G VG, G VG, VG VP, VP G, VP G, VP F, F P, P G, G G, G
DOHOL F, G F, P P, F F, VG F, VP F, VP VG, VG F, P G, G VG, VG
DYHOL VP, VP G, F VP, VP VG, VG P, VP F, VP VG, VG P, P G, G VG, VG
ECILC F, G P, VP P, F G, VG G, VP VG, P VG, VG G, G G, G VG, VG
EREGL F, G F, G G, VG P, VG G, P VG, VG G, G G, VG G, G VG, VG
GARAN F, G G, G G, G F, VG F, VP F, VP P, P P, P F, F VG, VG
GSDHO VP, VP F, P VP, P VG, VG F, VP P, VP VG, VG F, P F, F G, G
HURGZ P, P F, P VP, VP VG, VG VP, VP G, VP G, G P, P F, F G, G
IHLAS P, P G, F VP, P VG, VG VP, VP G, VP VG, VG G, G G, G G, G
ISCTR F, VG F, P P, F P, VG F, VP F, VP F, F P, P G, G VG, VG
ISGYO P, G P, VP VP, P VG, VG G, VP G, VP VG, VG F,P F, F G, G
Optimization

KRDMD P, F G, G G, VG VG, VG G, P G, VP VG, VG F, P VG, VG VG, VG

KCHOL F, G F, F P, G F, VG F, VP F, VP VG, G G, G G, G VG, VG
PETKM F, VG P, VP P, F P, VG VP, VP VG, P G, G G, G VG, VG VG, VG
PTOFS P, F F, F P, G F, VG G, VP VG, F G, G P, P G, G VG, VG
SAHOL F, G G, G F, G F, VG F, VP F, VP G, G G, G G, G VG, VG
SKBNK VP, VP VG F, G F, VG F, VP P, VP G, G F, P F, F G, G
SISE F, G F, P P, F F, VG G, P VG, F VG, VG VG, VG VG, VG G, G
TEBNK P, P G, G P, F G, VG F, VP F, VP G, F P, P F, F G, G
TSKB VP, VP VG, VG P, F G, VG F, VP P, VP VG, VG P, P VG, VG G, G
TCELL G, VG F, P G, VG P, VG F, VP F, VP P, VP F, P VG, VG VG, VG
TUPRS G, VG P, VP F, G P, G F, VP F, VP P, P F, P VG, VG VG, VG
THYAO F, G F, P P, G P, VG VG, VG VG, F G, G F, P VG, VG VG, VG
ULKER F, G VP, VP P, F F, VG G, VP G, VP G, G G, G VG, VG G, G
VAKBN P, F G, G P, F F, VG F, VP F, VP G, F P, P F, F G, G
YKBNK F, G G, G G, VG F, VG F, VP F, VP F, P P, P G, G G, G
435
 436 S. K|r|s and O. Ustun

Table 7. Synthetic performance values of alternatives.

Firm Lower Middle Upper BNP Rank

AKBNK 10.07056 62.29401 340.31780 137.560 10

AKGRT 11.34631 67.32767 357.13809 145.270 5
ARCLK 7.31038 40.74277 253.72550 100.592 26
AYGAZ 9.79855 53.93655 300.15430 121.296 17
BAGFS 12.43544 75.06628 380.88056 156.127 3
DOHOL 9.13921 52.41440 297.12950 119.561 19
DYHOL 5.91522 30.67241 253.47610 96.687 28
ECILC 9.25030 51.22026 299.54149 120.004 18
EREGL 12.79307 75.25169 384.94370 157.662 2
GARAN 10.54707 64.88871 356.11760 143.851 7
GSDHO 5.91349 33.46616 241.62324 93.667 29
Downloaded by [McGill University Library] at 03:48 03 September 2012

HURGZ 4.78127 26.49188 228.28280 86.518 30

IHLAS 7.13696 40.20782 266.57880 104.641 25
ISCTR 9.02696 51.32089 288.49058 116.279 22
ISGYO 6.55261 37.02838 254.63140 99.404 27
KRDMD 13.42707 77.11871 387.65660 159.400 1
KCHOL 9.81792 58.94781 326.67852 131.814 12
PETKM 8.90775 48.69164 282.90860 113.502 24
PTOFS 10.27628 59.16004 320.02820 129.821 13
SAHOL 10.47414 64.82601 357.23124 144.177 6
SKBNK 9.52331 58.07476 333.32730 133.641 11
SISE 9.72891 55.26427 305.02010 123.337 16
TEBNK 8.80695 50.35623 293.92637 117.696 21
TSKB 9.98832 55.00191 311.12140 125.370 15
TCELL 11.75706 68.98411 350.29997 143.680 8
TUPRS 9.46676 57.22843 312.99485 126.563 14
THYAO 11.57135 66.88245 342.09750 140.183 9
ULKER 8.46263 47.56741 286.75000 114.260 23
VAKBN 8.89123 50.80141 297.99080 119.227 20
YKBNK 11.48057 69.78728 366.01940 149.095 4

(z*), where z* ¼ max{ft(xi)|x 2 S}, in terms of objective space and overall utility
(U(z*)) values are

z ¼ ð51:90822, 2:073, 159:4010Þ and Uðz Þ ¼ 36:52193:

Reference objective vector, z**, where z** ¼ max{ft(x)|x 2 S} þ "t and the
"t ¼ 0.1 for t ¼ 1, 2, 3 is z** ¼ (51.80822, 2.173, 159.5010).
The weight vectors and the related initial solutions are given in Tables 8 and 9,
respectively.
The most preferred subset at first iteration is given in Table 10. The most
preferred solutions identified at each iteration of the RLTP are revealed in Table 11.
As seen from Table 11, the same solutions are obtained by both iterations. The RL
settings which are used to produce these solutions are revealed in Table 12. RL are
tightened automatically at the first iteration at prespecified constant rates (r ¼ 0.5 in
this approach) by using Equation (20) as follows:
RL1 ¼ 75.31053  0.5(75.31053 þ 90.88065) ¼ 83.09559,
 Optimization 437

Table 8. The weight vectors.

No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1 0.5 0.25 0.25 0.6 0.1 0.3 0.8 0.1 0.1 0.4 0.2 0.4 0.33 0.7 0.2 0.1
2 0.25 0.5 0.25 0.3 0.6 0.1 0.1 0.8 0.1 0.4 0.4 0.2 0.33 0.2 0.1 0.7
3 0.25 0.25 0.5 0.1 0.3 0.6 0.1 0.1 0.8 0.2 0.4 0.4 0.33 0.1 0.7 0.2

Table 9. The initial solutions obtained from first iteration.

No. z1 z2 z3 U(z) t(s)

Downloaded by [McGill University Library] at 03:48 03 September 2012

1 58.38051 1.385283 146.3564 29.78706 00:00:10

2 62.45180 1.499966 148.8574 29.30186 00:00:01
3 68.42710 1.553682 151.1916 28.10604 00:00:13
4 54.53902 1.188247 143.1162 29.92180 00:00:10
5 73.11925 1.617796 152.3973 26.96529 00:00:01
6 68.42710 1.553681 151.1916 28.10604 00:00:01
7 53.94733 1.144198 142.3881 29.86167 00:00:09
8 62.45180 1.499998 148.8574 29.30187 00:00:01
9 90.88065 1.568471 154.6169 21.76825 00:00:01
10 58.38051 1.385287 146.3564 29.78707 00:00:12
11 68.42710 1.553684 151.1916 28.10605 00:00:06
12 62.45180 1.499957 148.8574 29.30186 00:00:01
13 62.45180 1.499960 148.8574 29.30186 00:00:01
14 54.20540 1.164323 142.7208 29.89323 00:00:09
15 75.31053 1.618672 152.7861 26.36473 00:00:01
16 68.42710 1.553691 151.1916 28.10605 00:00:13

Table 10. The most preferred subset at first iteration.

z1 z2 z3 U(z) t (s)

1 75.31053 1.61867 152.78610 26.36473 00:00:01

2 73.11925 1.61780 152.39730 26.96529 00:00:01
3 68.42710 1.55369 151.19160 28.10605 00:00:13
4 62.45180 1.49999 148.85740 29.30187 00:00:01
5 58.38051 1.38528 146.35640 29.78707 00:00:12
6 53.94733 1.14419 142.38810 29.86167 00:00:09
7 54.20540 1.16432 142.72080 29.89323 00:00:09
8a 54.53902 1.18824 143.11620 29.92180 00:00:10

Note: aThe most preferred solution related to the first iteration.

RL2 ¼ 1.14419  0.5(1.14419  1.14419) ¼ 1.14419,

RL3 ¼ 142.3881  0.5(142.3881  142.3881) ¼ 142.3881.
The investors are satisfied with the result of the second iteration according to the
utility values. The final solution is given in Table 13. Based on this result, BAGFS,
ECILC, EREGL, TCELL and TUPRS comprised the portfolio. To evaluate the
 438 S. K|r|s and O. Ustun

Table 11. The most preferred RLTP solutions.

z1 z2 z3 U(z)

1 54.53902 1.18824 143.11620 29.92180

2 54.53902 1.18824 143.11620 29.92180

Table 12. Reservation levels.

RL1 RL2 RL3

Downloaded by [McGill University Library] at 03:48 03 September 2012

1 1 1 1
2 83.09559 1.14419 142.3881

Table 13. The final solution obtained by using RLTP.

i 5 8 9 25 26

xi 0.2032650 0.1528239 0.1687008 0.3680334 0.1071769

Firm BAGFS ECILC EREGL TCELL TUPRS
2009 Annual return (%) 71.63 202.48 52.12 28.56 106.27

performance of the portfolio, 2009 annual returns of the stocks in the portfolio were
calculated as in Table 13. It can be seen from 2009 annual returns that the crisis
environment can be an opportunity for investors.

4. Conclusion
In this study, an integrated approach is proposed for stock evaluation and portfolio
optimization problems. These problems are individually considered in the literature
and this can cause inefficient solutions for the investors. Although these individual
approaches give appropriate solutions, the integrated approach provides more
preferred solutions by considering the investors’ preferences in the whole investment
process. Therefore, the novelty of the proposed approach is the integration of the
solutions for stock evaluation and portfolio optimization problems by considering
the investors’ preferences interactively.
The decision-making process consists of two phases to evaluate the stocks and to
determine their proportions in portfolio. In the first phase, fuzzy MCDM approach
was used to evaluate 30 stocks taken from ISE30 between the years 2006 and 2008.
This approach is a simple and practical method to support investors in uncertain and
vague environment. It is a significant issue to define accurate linguistic terms
and ranges for obtaining acceptable portfolio, since it proposes a flexible
decision-making methodology to integrate investors’ preferences.
 Optimization 439

In the second phase, the proportions of stocks in portfolio were determined based
on the MOMINLP model. This model was solved by using RLTP. RLTP is more
flexible than the other RL-based approaches and enables to backtrack and change
previous inconsistent decisions.
It can be generalized from the results that the investors are risk averse and the
first criteria which is about the investor’s objectives (approximately 0.80 of BNP) is
more important for investors, especially the sub-criteria of mean return between the
years 2006 and 2008 with the BNP weight of 0.71. According to the results, it can be
said that, if only the stock of ECILC was purchased, 2009 annual return of ECILC
would be 202.48%. On the other hand, the return of the proposed portfolio was
76.20% based on investors’ preferences. Besides, the crisis environment can provide
some opportunities as it can be seen in 2009 annual returns of stocks in which the
Downloaded by [McGill University Library] at 03:48 03 September 2012

minimum return was 28.56% within stocks in portfolio.

In the study, two investors determined the criteria and sub-criteria, but more
investors can be easily included in the performance evaluation system. A decision
support system can be created to include more investors.
A sensitivity analysis can be conducted for the parameter values such as the
number of stocks, the minimum and maximum proportion of stocks in portfolio to
evaluate the investment decisions.

References

[1] M.J. Alves and J. Climaco, An interactive reference point approach for multiobjective
mixed-integer programming using branch-and-bound, Eur. J. Oper. Res. 124 (2000),
pp. 478–494.
[2] L. Arthur and P. Ghandforoush, Subjectivity and portfolio optimization, in Advances in
Mathematical Programming and Financial Planning, K. Lawrance, J. Guerard, and
G. Reeves, eds., JAI Press, Greenwich, CT, 1987, pp. 171–186.
[3] V.J. Bowman, On the relationship of the Tchebycheff norm and the efficient frontier of
multiple-criteria objectives, in Multiple Criteria Decision Making, Lecture Notes in
Economics and Mathematical Systems, Vol. 130, H. Thiriez and S. Zionts, eds., Springer,
Berlin, 1976, pp. 76–86.
[4] J.T. Buchanan, A naive approach for solving MCDM problems: The GUESS method,
J. Oper. Res. Soc. 48 (1997), pp. 202–206.
[5] J.J. Buckley, Ranking alternatives using fuzzy numbers, Fuzzy Sets Syst. 17 (1985),
pp. 233–247.
[6] T. Chang, N. Meade, J. Beasley, and Y. Sharaiha, Heuristics for cardinality constrained
portfolio optimization, Comput. Oper. Res. 27 (2000), pp. 1271–1302.
[7] S.J. Chen and CL. Hwang, Fuzzy Multiple Attribute Decision Making, Methods and
Applications, Lecture Notes in Economics and Mathematical Systems, Vol. 375, Springer,
New York, 1993.
[8] E.A. Demirtas and O. Ustun, An integrated multiobjective decision making process for
supplier selection and order allocation, Omega 36 (2008), pp. 76–90.
[9] M. Ehrgott, K. Klamroth, and C. Schwehm, An MCDM approach to portfolio
optimization, Eur. J. Oper. Res. 155 (2004), pp. 752–770.
[10] T.Y. Hsieh, S.T. Lu, and G.H. Tzeng, Fuzzy MCDM approach for planning and
design tenders selection in public office buildings, Int. J. Project Manage. 22 (2004),
pp. 573–584.
 440 S. K|r|s and O. Ustun

[11] C. Hurson and C. Zopounidis, On the use of multicriteria decision aid methods to portfolio
selection, J. Euro-Asian Manage. 1 (1995), pp. 69–94.
[12] A. Jaszkiewicz and R. Slowinski, The ‘light beam search’ approach – An overview of
methodology and applications, Eur. J. Oper. Res. 113 (1999), pp. 300–314.
[13] J.N. Karaivanova, S.C. Narula, and V. Vassilev, An interactive procedure for multiple
objective integer linear programming problems, Eur. J. Oper. Res. 68 (1993), pp. 344–351.
[14] S. K|r|s and O. Ustun, Fuzzy MCDM approach of stocks evaluation and portfolio election,
24th Mini EURO Conference on Continuous Optimization and Information-Based
Technologies in the Financial Sector (MEC EurOPT 2010), Selected Papers, Izmir, _
Turkey, 23–26 June 2010, pp. 330–336.
[15] P. Korhonen and J. Laakso, A visual interactive method for solving the multiple criteria
problem, Eur. J. Oper. Res. 24 (1986), pp. 277–287.
[16] P.J.M. Laarhoven and W. Pedrycz, A fuzzy extension of Saaty’s priority theory,
Downloaded by [McGill University Library] at 03:48 03 September 2012

Fuzzy Sets Syst. 11 (1983), pp. 229–241.

[17] R. Mansini, W. Ogryczak, and M.G. Speranza, Conditional value at risk and related linear
programming models for portfolio optimization, Ann. Oper. Res. 152 (2007), pp. 227–256.
[18] H. Markowitz, Portfolio selection, J. Fin. 7 (1952), pp. 77–91.
[19] K. Miettinen and M.M. Makela, Interactive bundle-based method for nondifferentiable
multiobjective optimization: NIMBUS, Optimization 34 (1995), pp. 231–246.
[20] D.L. Mon, C.H. Cheng, and J.C. Lin, Evaluating weapon system using fuzzy
analytic hierarchy process based on entropy weight, Fuzzy Sets Syst. 62 (1994),
pp. 127–134.
[21] H. Nakayama and Y. Sawaragi, Satisficing trade-off method for multiobjective
programming, in Interactive Decision Analysis, M. Grauer and A.P. Wierzbicki, eds.,
Springer, Berlin, 1984, pp. 113–122.
[22] W. Ogryczak, Multiple criteria linear programming model for portfolio selection,
Ann. Oper. Res. 97 (2000), pp. 143–162.
[23] G.R. Reeves and K.R. MacLeod, Some experiments in Tchebycheff-based approaches for
interactive multiple objective decision making, Comput. Oper. Res. 26 (1999),
pp. 1311–1321.
[24] D. Roman, K.H. Darby-Dowman, and G. Mitra, Mean-risk models using two risk
measures: A multi-objective approach, Quant Fin. 7 (2007), pp. 443–458.
[25] T.L. Saaty, The Analytic Hierarchy Process, McGraw-Hill, New York, 1980.
[26] L. Schrage, Optimization Modeling with Lingo, Lindo Systems Inc., Chicago, 2008.
[27] P. Sevastjanov and L. Dymova, Stock screening with use of multiple criteria decision
making and optimization, Omega 37 (2009), pp. 659–671.
[28] J. Spronk and W.G. Hallerbach, Financial modelling: Where to go? With an illustration for
portfolio management, Eur. J. Oper. Res. 99 (1997), pp. 113–127.
[29] R.E. Steuer, Multiple Criteria Optimization, Wiley, New York, 1986.
[30] R.E. Steuer, Manual for the ADBASE Multiple Objective Linear Programming Package,
University of Georgia, Athens, 1992.
[31] R.E. Steuer and E.U. Choo, An interactive weighted Tchebycheff procedure for multiple
objective programming, Math. Program. 26 (1983), pp. 326–344.
[32] R.E. Steuer and P. Na, Multiple criteria decision making combined with finance:
A categorized bibliography, Eur. J. Oper. Res. 150 (2003), pp. 496–515.
[33] R.E. Steuer, Y. Qi, and M. Hirschberger, Multiple objectives in portfolio selection,
J. Finan. Decis. Making 1 (2005), pp. 11–26.
[34] R.E. Steuer, Y. Qi, and M. Hirshberger, Suitable-portfolio investors, non-dominated
frontier sensitivity, and the effect of multiple objectives on standard portfolio selection,
Ann. Oper. Res. 152 (2007), pp. 297–317.
[35] F. Tiryaki and M. Ahlatcioglu, Fuzzy stock selection using a new fuzzy ranking and
weighting algorithm, Appl. Math. Comput. 170 (2005), pp. 144–157.
 Optimization 441

[36] F. Tiryaki and M. Ahlatcioglu, Fuzzy portfolio selection using fuzzy analytic hierarchy
process, Inform. Sci. 179 (2009), pp. 53–69.
[37] O. Ustun and R. Kasimbeyli, Combined forecasts in portfolio optimization: A generalized
approach, Comput. Oper. Res. 39 (2012), pp. 805–819.
[38] V. Vassilev and S.C. Narula, A reference direction algorithm for solving multiple objective
integer linear programming problems, J. Operat. Res. Soc. 44 (1993), pp. 1201–1209.
[39] A.P. Wierzbicki, Basic properties of scalarizing functionals for multiobjective optimization,
Optimization 8 (1977), pp. 55–60.
[40] A. Wierzbicki, The Use of Reference Objectives in Multiobjective Optimization,
Lecture Notes in Economics and Mathematical Systems, Vol. 177, Springer, Berlin,
1980, pp. 468–486.
[41] P. Xidonas, D. Askounis, and J. Psarras, Common stock portfolio selection: A multiple
criteria decision making methodology and an application on the Athens Stock Exchange,
Oper. Res. Int. J. 9 (2008), pp. 55–79.
Downloaded by [McGill University Library] at 03:48 03 September 2012

[42] P. Xidonas, G. Mavrotas, and J. Psarras, Portfolio construction on the Athens Stock
Exchange: A multiobjective optimization approach, Optimization 59 (2010), pp. 1211–1229.
[43] P. Xidonas and J. Psarras, Equity portfolio management within the MCDM frame:
A literature review, Int. J. Banking Account. Fin. 1 (2008), pp. 285–309.
[44] L.A. Zadeh, The concept of a linguistic variable and its application to approximate
reasoning, Inform. Sci. 8 (1975), pp. 199–249.
[45] L.A. Zadeh, The concept of a linguistic variable and its application to approximate
reasoning, Inform. Sci. 8 (1975), pp. 301–357.
[46] M. Zeleny, Satisficing optimization, and risk in portfolio selection, in Readings in Strategies
for Corporate Investment, F.G.H. Derkinderen and R.L. Crum, eds., Pitman Publishing,
Boston, 1981, pp. 200–219.
[47] C. Zopounidis, D.K. Despotis, and I. Kamaratou, Portfolio selection using the ADELAIS
multiobjective linear programming system, Comput. Econ. 11 (1998), pp. 189–204.
[48] C. Zopounidis and M. Doumpos, Multicriteria decision aid in financial decision making:
Methodologies and literature review, J. Multi-Criteria Decis. Anal. 11 (2002), pp. 167–186.