The Design And Optimization Of A Dual Index Minimum Investment Model

Security technical analysis is a method which is widely used in security investmentanalysis. According to the technical index, investors predict the trend of the stock market inorder to gain more returns, at this time, for the most part, is to find the reversal point of thestock price. If it is earlier for investors to judge price reversal point, and they buy stock at lowprice and sell stock at high price, then they will receive generous returns. The relationshipbetween trading volume and stock price plays an important role in technical analysis. Thispaper designs a model to identify reversal point based on the volume and price. This modelhas a referential significance for investors to make a better investment decision.According to the theory of the technical analysis, and the cointegration relationshipbetween closing price and trading volume, this paper designs a dual index minimuminvestment model considering the closing price and trading volume at the same time. Thismodel is called the bipolar model for short. This bipolar model has two parameters, includingP and Q, where P represents today’s closing price is minimal in P continuous days, Qrepresents today’s trading volume is minimal in Q continuous days. The differentcombination between P and Q represents different investment model. Given P and Q, iftoday’s closing price is minimal in P continuous days and today’s trading volume is minimumin Q continuous days, then the bipolar index value is1, otherwise it is0. When the bipolarindex value changes from1to0, then buy stock. After buying up the stocks, when stock pricedrops from a new high position, and from that position, the stock price drops5percent within4days, then selling all the stocks. When the stock closing price sequence and trading volumesequence are integration of first order, and these sequences exist first order autocorrelationafter first difference, this paper proves the rationality of the bipolar model.Let investment time be n years, using the bipolar model to simulate to invest. First, wecalculate the investment returns at each sale under different P and Q combination, andcalculate the investment returns for n years according to compound interest, then we will getthe annual average rate of return. Second, we calculate daily VaR of each investment based onthe EGARCH model, making the99%quantile of the VaR series as the total risk value for nyears. Evaluating each investment by the annual average rate of return and total risk value. Third, in order to find better combination of parameters, we make the contour of the returnrate and the risk respectively under different parameters, then observe the sensitivity of theparameters to the return rate and risk. At last, by optimizing these parameters, we obtain thebest combination of parameters. Take Wanke-A stock for a test, the results show that thereturn rate is more sensitive to P and less sensitive to Q, but the risk is sensitive to both P andQ. By using of RAROC index, the best combination of parameters is when P equals2and Qequals5; for different types of investors, according to the efficient borderline and thenon-discrimination curve, we can obtain the corresponding optimal parameter combination.For the conservative investors, the optimal combination of the parameters is when P equals5and Q equals4; for aggressive investors, the optimal combination of the parameters is when Pequals3and Q equals4.