Portfolio Selection: Possibilistic Mean-Variance Model and Possibilistic Efficient Frontier

There are many non-probabilistic factors that affect the financial markets. In this paper, the possibilistic mean-variance model of portfolio selection is presented under the assumption that the returns of assets are fuzzy numbers, which can better integrate the experts’ knowledge and the managers’ subjective opinions to compare with conventional probabilistic mean-variance methodology. The possibilistic efficient frontier is derived explicitly when short sales are not allowed on all risky assets and a risk-free asset.