A Portfolio Decision Model For Banks Based On Multi-period Dynamic Optimization

The asset portfolio management level has great effect on the market competition ability and payoff ability. With the bankruptcy phenomena increasing, credit risk has been the major risk that banking confronts, especially for China's commercial banks. Therefore, to introduce the loans' credit risk into the computation of the earning yield and study the bank's asset portfolio from the multi-period asset portfolio has become the focus of the academe and banking. Therefore, the research of optimized model of asset portfolio could provide the risk control and the decision foundation of the optimized allocation of assets of commercial banks, which has the important realistic meaning.The paper is organized as follows. Section 1 reviews the literature on theory and model of Asset-Liability-Management, and our principle is introduced in Section 2 Our model is set up in Section 3. The asset allocation results are reported in Section 4. Section 5 concludes.The research applies the linear programming and takes the maximum income of each asset portfolio of banks, and it also takes the VaR risk value and law and rules and management as the restraints to set up the portfolio decision model for banks based on multi-period dynamic optimization. Meanwhile through application, it tests the model is suitable and maneuverable for the China's commercial asset portfolio management.The first characteristic and innovation of this paper is to consider the mutual effect of each period of loans and applies the Backward Induction Method to set up the optimized admeasure of the current loans which makes the total loans allocation of the whole section reach the best. And then such problems as the neglect or lack consideration of the interaction of each period can be solved. The second characteristic and innovation of this paper is to consider the previous loan credit level transferring will influence the current expected value of the loan yield. This paper is that introduces the credit risk migration mentality to in the loan's yield calculation, had reflected the credit rank migration to the loan's yield influence. It can objectively reflect the real yield and risk. As a result the problem of simply seeking the expected value of each loan's yield or only considering it as constant and neglect the credit risk migration in the recent studies can be solved.