A Fuzzy Approach to Solving Multicriteria Investment Problems

Financial mangers bave to make decisions Ilnder many restrictions and often have to deal with vague and imprecise information. In multicriteria problems, the best solution is sought in a set X of alternatives under certain constraints with rates of contentment,ili : X ~ [0,1]. Considering these rates as membership fnnctions, the tools that fuzzy logic provides Is adeqll3te to solving a multicriteria investment problem. In this paper, a fuzzy approach for assessing the qllality of an asset and making an investment decision based on this assessmeat is proposed. I. lNrRODUCTION Assessing the characteristics of potential assets is a key issue in managing individual finance investments as well as in managing finance portfolio investments. Since an investor seeks maximal possible return combined with minimal possible risk, in the decision making process at least two criteria have to be taken into considenition. Return and risk are the most common measurements in different models. They are obtained either from historical data or by subjective probabilities [1], (2), (3], (6], [8). The precise determination of these characteristics is the basis for a good initial investment and proper investment ~ement in time. Investors' decisions are based on the degree of satisfaction of certain criteria often in conditions of vague and imprecise available economic information and are an optimal solution in a set X of alternatives [4]. This optimization problem could be solved with the tools of fuzzy logic if the degrees of satisfaction of the criteria are treated as membership functions of fuzzy variables ,ill: X ~ [0,1] . In this paper, a fuzzy logic based model for assessing financial assets and taking an investment decision is proposed. The input variables are the key characteristics of an asset K 1 ={return}, K 2 ={Risk} and an additional one K 3 = {r /R ratio}. The decision about asset valuation is an output variable Q ={quality} .