A Shariah-compliant portfolio selection model

The paper aims to develop a Shariah-compliant optimization model for portfolio selection in an Islamic security market. The security return is considered stochastic and is estimated based on the stochastic market return. The proposed model follows Shariah principles by avoiding excessive risk and pr...

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Bibliographic Details
Published in:The Journal of the Operational Research Society 2018-10, Vol.69 (10), p.1568-1575
Main Author: Masri, Hatem
Format: Article
Language:English
Subjects:
chance-constrained approach
corporate social responsibility
goal programming
Islamic investment
multiple stochastic programming
recourse approach
Shariah-compliant portfolio
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Summary:The paper aims to develop a Shariah-compliant optimization model for portfolio selection in an Islamic security market. The security return is considered stochastic and is estimated based on the stochastic market return. The proposed model follows Shariah principles by avoiding excessive risk and providing an ethical and socially responsible approach for portfolio selection. We assume that the portfolio return should be maximized for a given probability of loss and that any return below the Zakat threshold is a recourse cost. The Shariah-compliant portfolio selection model is obtained using a goal programming approach, a chance-constrained approach and a recourse approach. An empirical study from Bahrain Islamic Market is reported.
ISSN:0160-5682
1476-9360
DOI:10.1057/s41274-017-0223-6