Multi-objective Management Of China’s Foreign Reserve

International reserves held by the monetary authorities is generally accepted as thenational assets, which is used for keeping the international payments balance, maintainingthe stability of their currencies and emergency international payment. Foreign exchangereserves as the main form of the international reserves plays an important role in the stabledevelopment of a country’s economy. With the economic globalization growing today,one country is more and more easily impacted by finance crisis, so it is a hotpot problem tostudy the change and development of foreign exchange reserves.In recent years, China’s foreign exchange reserves grows rapidly. Compared to theend of2012, the country’s foreign exchange reserves reached to3.82trillion of dollarsand increased5097billion of dollars. Both the country’s foreign exchange reserve andannual growth hit the historical high. China’s foreign exchange reserves continue to hit arecord, which has triggered a intense discussion. The public debt burden of America isbecoming heavier and heavier in response to the financial crisis in2008. America isfacing downward pressure on the dollar long-time, which may greatly reduce China’sactual purchasing power. The deep economic impact of European sovereign debt crisis isstill fermenting, but some euro asset prices are reaching historic lows and somehigh-quality assets value has been underestimated. Emerging markets is to enhance theattractiveness of China. China’s international status has been further enhanced. In thenew international financial ecological environment, China vast holdings of dollar assetsmay face greater shrink risk in the long term, What’ more, the opportunity cost of theseassets is increasing. Therefore, it is significance to explore new method to manageChina’s foreign exchange reserves optimally.This paper establishes a multi-objective stochastic programming model. This paperstudies the allocation of china’s foreign exchange reserves in international assets accordingto investors’ different preferences and different economic states. The generation of sparsetrees of stochastic variables is done to match historical information, and this model captures the three objectives profitability, liquidity and safety into the unified objectivefunction, finally calculated the optimal allocation proportion of each asset and the trend ofadjustment in different weights and different exchange reserves.