TITLE:
Analytical Hierarchy Process and Goal Programming Approach for Asset Allocation
AUTHORS:
Komlan Sedzro, Arif Marouane, Tov Assogbavi
KEYWORDS:
Asset Allocation; Goal Programming; Analytic Hierarchy Process
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.2 No.1,
February
28,
2012
ABSTRACT: Asset allocation in portfolio construction must simultaneously consider market conditions and investors’ specific preferences. Therefore, it is a multi-criteria decision that goes beyond the scope of the two-criteria, mean and variance of the portfolio returns, optimization method that traditionally prevails in the financial literature. This article suggests a procedure that makes integrated asset management possible, based on the Analytic Hierarchy Process combined with a mean variance and goal programming model. We illustrate this procedure with data from Canadian mutual funds over a total period of five years and three months, from September 2002 to November 2007. The results obtained are encouraging, as the portfolios constructed in this manner perform better than the S&P/TSX 60 index, which is the reference portfolio for the Canadian market.