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Article

Problem of Multicurrency Deposit Diversification – Three Possible Approaches to Risk Accounting

Zhukovskiy V., Molostvov V.S., Topchishvili A.

The paper investigates possible ways to take into account risks, caused by uncertain factors, using the problem of optimal deposit diversification as an applied example. It is assumed that the investor (Decision Maker - DM) does not know future exchange rates at the end of the deposit period, and focuses only on some limits of their possible changes. Solution for this problem of decision-making under uncertainty depends on DM’s attitude to the risk\income. Various solutions - optimal with respect to guaranteed income, optimal with respect to guaranteed risk (Savage minimax regret solution), as well as a solution of a multiple-criteria problem with two criteria of equal importance, namely, risk and income, are obtained.

Keywords: Deposit Diversification, Uncertainty, Utility Function, Strategies, Outcomes, Risk by Savage, Multiple-Criteria Problems, Pareto Optimality.