Optimal Asset Allocation For Balanced Fund

Balanced fund is a mutual fund which focuses on both current income and the growth of long-term value. It distributes assets between stocks and bonds to ensure both safety and profitability of the fund. Fund managers will adjust the allocation according to the market changes. In the last decade, the total return of balanced funds is much more than the others including stock funds, which proves the stable investment capacity of the balanced funds under volatile market environment.In this paper, we first stimulate stock prices and interest rate by using stochastic processes such as geometric Brownian motion and Vasicek model to derive the price of bond. Then we calculate the optimal allocation between two assets, or among multiple assets through mean-variance utility function under the assumption that there is no tax or any charges, the investment shares are freely divisible and securities can be short sold. Finally, we use recent years' data of A share market and the domestic bond market to perform the empirical analysis...