A Multi-Step Procedure for Asset Allocation in Case of Limited Resources

Portfolio management is a process involving decision making in dynamic and unpredictable environment. Asset allocation plays a key role in this process, since the optimal use of the capital is a complex and resource-consuming problem. During our research in this field we have detected some problems that lead to biased results and one of them occurs in case of limited financial resources. In this paper a mathematical assessment of the dependence of the capital, used on asset prices is derived, and a multi-step procedure for asset allocation, aiming at optimization of the investor’s utility in case of limited resources is described. The procedure is implemented as a module in a decision support system based on fuzzy logic. The paper contains comparison of the obtained test results with results from the classical Markowitz portfolio model. The conducted tests are on real data from the Bulgarian stock exchange.