The advantage of the portfolio network model lies with several factors. The portfolio network model gives a more understandable conceptual framework through the use of visual diagrams of portfolio structure. The ability to visualize a problem not only enhances understanding but allows extension to problems not even imaged previously. Secondly, the network […]
The portfolio network is made up of lines, or arcs representing the direction of flow and nodes or circles representing portfolio transaction points. There are three kinds of network arcs. Input arcs feed money into the portfolio, output arcs take money out of the portfolio, and investment arcs allow the flow of money within the portfolio through various investments, or liabilities. Each network arc has one arrow showing the direction of monetary […]
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The above figure shows the basic portfolio network for portfolio selection under uncertainty in one period. Now the multipliers or returns on each investment arc are uncertain. The multipliers are being generated by a probability distribution or by a stochastic process. With stochastic multipliers the portfolio network becomes a stochastic […]