Multi-Stage Financial Asset Allocation With Transaction Costs Based On CDaR Method And Empirical Study

With the progress of the economic globalization, information technology and the development of the derivatives, global financial market faces basic change. At the same time, the financial markets all over the world relate more closely. The flow of information and capital efficiency is greatly improved, made the financial markets faced unprecedented volatility. So risk management has become more and more sensitive to investors. Based on this background, this paper establish a multi-stage financial asset allocation based on CDaR method and chose current deposit interest rate, the Treasury index returns, the Shanghai composite index returns data from January1,2008to February28,2011as a sample. The main work and conclusions can be stated as follows.(1) Establish a multi-stage financial asset allocation model based on CDaR method. Under the help of Carino’s multi-stage stochastic programming model, this paper takes transaction costs and CDaR method into account and establishes a multi-stage financial asset allocation model. Through introducing penalty function to solve the multi-stage problem, give the optimal asset allocation strategy of stages.(2) Using Matlab7.10program, solve the multi-stage financial asset allocation model. This paper uses the real data of financial market in China to compare the transaction costs and no transaction cost, static and dynamic planning in the modle. Besides, the paper also considers the investor’s different preferences to risk. So it added the domestic’s shortcoming of the multi-stage financial asset allocation under the CDaR method.(3) Through comparing the static programming and dynamic programming, this paper concludes that dynamic assets allocation is much closer to real investment decision than static assets allocation, and it has more advantages. In the static condition, investors will hold the destiny of the asset allocation to the final. But actually, in order to achieve the optimal assets allocation, investors often change their decisions according to the investment environment.(4) This paper considers the influence of transaction cost in the multi-stage financial asset allocation model based on CDaR method. It concludes that the transaction cost have some level of influence to financial asset allocation. Moreover, the influence of transaction costs in the dynamic programming is greater than in the static programming conditions.