International asset allocation optimization with fuzzy return

Abstract This paper investigates an international asset allocation problem in a fuzzy uncertain environment, where the risk attitudes of investors are taken into consideration. Since investors are usually risk aversion, we use the possibilistic risk premium index to measure their required compensation for implementing a venture investment in the paper. Then, we present a possibilistic international asset allocation optimization model with realistic constraints. The main features of the proposed model are that we represent investors’ risk preferences by the commonly-used hyperbolic absolute risk aversion (HARA) utility function, and incorporate some realistic constraints into the proposed model to simulate the transaction in the real world financial markets. To solve the proposed model, we design a time variant differential evolution with harmony search (TVDEHS) algorithm in the paper. Finally, we provide a numerical example to demonstrate the application of the proposed model and highlight the performance of the designed algorithm.