A Portfolio Optimization Model Based on Polynomial Goal Programing Including Higher Order Moments Skewness and Kurtosis - Bucharest Stock Exchange

Portfolio optimization as method used in finance aims to identify the potential scenarios for satisfying conflicting/competing objectives like, for example, maximizing the return/profit and reducing the risk/loss. Thus, the motivation for choosing studying and applying this method arises from the potential scenarios that the portfolio managers or the individual investors have when applying this framework. The Modern Portfolio Theory, as we know it, considers only the first two moments of the probability distributions of the rates of return as opposed to the considerable number of papers highlighting the need of the higher moments (skewness and kurtosis) acknowledgement, analysis and optimization. In this paper, we intend to use the polynomial goal programing, as an optimization method, to understand the selection problem for Bucharest Stock Exchange (2014-2020) daily quotes and to propose a set of reusable preference parameters when investing in this market. We conclude that shares being preferred in the Markowitz/Sharpe/Treynor frameworks have less impact in the MVSK space.