A Study Of The Effect Of Exit Strategy On Birandom Safety-first Portfolio Model

This paper studies the portfolio theory. There are two phenomena, the first is thatsome technical patterns occur repeatedly in stock market, the second is that investorsoften use exit strategy. In order to do research into the two phenomena, this paperstudy how to estimate the stock return, how to choose a portfolio model, how to designa hybrid intelligent algorithm, how to study the effect of exit strategy on portfoliomodel, how to determine the optimal stop-loss point and the stop-profit point. Themain contributions and originality contained in this dissertation are as follows:①Some technical patterns occur repeatedly in stock market. Stock with sometechnical patterns are much more likely to profit than those with other technicalpatterns. If investors can distinguish the recurring technical patterns, summarize thelaws, and use them to choose stocks, then it can greatly improve the performance ofprofit. Firstly, this paper propose a new method to estimate the stock return and usebirandom distribution to denote the final stock return, secondly, this paper build abirandom safety-first model based on the existing literatures and design a hybridintelligent algorithm integrating genetic algorithm and birandom simulation, finally, inorder o verify the validity of the model and the algorithm, this paper use threenumerical example to simulate the process of different investors and put forward thecorresponding suggestions to investors according to the numerical results.②In order to better solve the birandom safety-first model, this paper design anew hybrid intelligent algorithm integrating LMGS-FOA and birandom simulation.Firstly, this paper study the performance of FOA to address the complex optimizationproblems, secondly, LGMS-FOA is proposed based on FOA, finally, a new hybridalgorithm integrating LGMS-FOA and birandom simulation is proposed and comparedwith the existing algorithms.③As we all know, there are two important parts in investment process: how tobuy and how to sell. However, to the best of our knowledge, there is no research on theeffect of selling strategy on portfolio selection. Exit strategy is an effective sellingstrategy. Firstly, this paper innovatively study the effect of exit strategy on thebirandom safety-first model, secondly, this paper build a birandom safety-first modelbased on the exit strategy and design a hybrid intelligent algorithm integratingLGMS-FOA and birandom simulation, finally, a numerical example is proposed. Based on the above research, the conclusion of this paper is as follows:①Using birandom distribution to describe the stock return not only demonstratesthe features of technical patterns but also reflectes the investors’ heterogeneity. Thebirandom safety-first model not only considers the effect of profit and disaster but alsoapply to all investors through parameters adjustment. The numerical examples verifythe validity of the model and algorithm.②Through the analysis, it is found that FOA can not solve the complexoptimization problems effectively. This is because that FOA has a nonlinear generationmechanism of candidate solution which limit the performance of FOA. In order toovercome the disadvantages of FOA, LGMS-FOA is proposed and we theoreticallyprove that LGMS-FOA is better than FOA and the experimental results support ourconclusion. Meanwhile, when solving the birandom safety-first model, the hybridalgorithm integrating LGMS-FOA and birandom simulation is better than the hybridalgorithm integrating GA and birandom simulation.③Through the numerical example, this paper find that the exit strategy affectsthe buying strategy and the investor should adjust the stock return according to thestop-loss point and the stop-profit point, otherwise the portfolio model will becomeinvalid.④When the stock return, the risk and profit are given, the performance oftaking the exit strategy is better than when the exit strategy is not taken, if the stop-losspoint and the stop-profit point are appropriately set. The reason is that investors usingexit strategy will adopt a new portfolio proportion because he is concerned with theaccumulated probability of stock price exceeding the stop-profit point and the stop-losspoint not the higher stock return any more.