scholarly journals Constructing an optimal investment portfolio for the Bank of Lithuania

Ekonomika ◽  
2016 ◽  
Vol 95 (1) ◽  
pp. 112-133
Author(s):  
Birutė Galinienė ◽  
Justina Stravinskytė
Keyword(s):  
Management Strategies ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Financial Assets ◽  
Currency Risk ◽  
Investment Portfolio ◽  
Risky Assets ◽  
Course Of Action ◽  
Total State ◽  
Assets Management

The main goal of this article is to illustrate the strategy, devised to improve the effectiveness of utilizing the financial assets, or in this case, the official international reserves, belonging to the Bank of Lithuania. In Lithuania, the value of financial assets as a percentage of total state assets has doubled in the span of 10 years. Moreover, a strong correlation between the real GDP growth and the Bank of Lithuania’s financial assets/profitability implies that the effectiveness of financial assets management has a nationally wide impact. Unfortunately, the Bank’s profit/invested value indicator has reached a record low in 2012–2013, which resulted in the whole bank’s profit being absorbed into the state’s budget (as opposed to 70 % of it). Such signs meant that the previous investment strategy has become ineffective and needed changes.To highlight the necessary changes, the authors conduct a practical research and construct the optimal investment portfolio, according to the goals and variables given by the guidelines, proposed by Bank of Lithuania. The size of the portfolio is 4,14 bn euros, and the maximum loss per year (VaR) allowed is -100 M euro/year, as stated by the Bank of Lithuania’s risk budget limit. The authors also focus on the issue of increased currency risk after investing in volatile share indices and whether hedging against it with Forex spot transactions is beneficial.The result of the research is an optimal portfolio, consisting of 9,85 percent of risk-free assets and 90,15 percent of risky assets. Hedging against currency risk in this case is an ultimately beneficial course of action, yielding an increase of annual returns by 0,3 percent, which translates to +12,3 mln euros. Finally, the portfolio is flexible and simple to reshape into a less risky variant, if the institution predicts the dangers of possible future economic downfalls.This research was further used in a broader paper whose goal was to analyse and assess the effectiveness of currently employed assets’ management strategies in Lithuania.

scholarly journals A Study on the Optimal Portfolio Strategies Under Inflation

2015 ◽  
Vol 3 (2) ◽  
pp. 111-132
Author(s):  
Mei Yu ◽  
Qian Gao ◽  
Zijian Liu ◽  
Yike Zhou ◽  
Dan Ralescu
Keyword(s):  
Optimal Investment ◽  
Investment Strategy ◽  
Financial Assets ◽  
Portfolio Strategies ◽  
Optimal Investment Strategy ◽  
Hedging Portfolio ◽  
Inflation Factor ◽  
Real Returns ◽  
Mean Variance ◽  
Inflation Hedging

AbstractThis paper tests the inflation hedging ability of four categories of important financial assets in China: Commodity futures, real estate, gold and industry stock and select the assets that have significant inflation hedging effect. Then the authors construct the mean-variance model under the inflation factor, using the selected assets to construct the inflation hedging portfolio, solving the model and obtain the optimal investment strategy with inflation protection function. The result shows that the portfolio constructed by the model have more stable real returns and its inflation hedging ability can be even better if the short selling restriction of stocks is eliminated.

scholarly journals Optimal Investment Strategy for Risky Assets

1998 ◽  
Vol 01 (03) ◽  
pp. 377-387 ◽  
Author(s):  
Sergei Maslov ◽  
Yi-Cheng Zhang
Keyword(s):  
Growth Rate ◽  
Brownian Motion ◽  
Continuous Time ◽  
Optimal Strategy ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Risky Assets ◽  
Average Return ◽  
Optimal Investment Strategy

We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor's capital. We determine the optimal fraction of capital that an investor should keep in risky assets as well as weights of different assets in an optimal portfolio. In this approach both average return and volatility of an asset are relevant indicators determining its optimal weight. Our results are particularly relevant for very risky assets when traditional continuous-time Gaussian portfolio theories are no longer applicable.

scholarly journals Research on Optimal Investment Reinsurance of Insurance Companies under Delayed Risk Model

2021 ◽  
Vol 2021 ◽  
pp. 1-10
Author(s):  
Yun Xiao ◽  
Zhijian Qiu
Keyword(s):  
Risk Model ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Optimization Criterion ◽  
Investment Model ◽  
Insurance Companies ◽  
Investment Portfolio ◽  
Market Competitiveness ◽  
Optimal Investment Strategy ◽  
Risk Investment

The reinsurance and investment portfolio of insurance companies has always been a hot issue in insurance business. In insurance practice, it is inevitable for insurance companies to invest their own funds in order to expand their capital scale and enhance market competitiveness so as to obtain greater returns. At the same time, in order for insurance companies to disperse insurance risks and to avoid too concentrated claims or catastrophes caused by failure to perform compensation responsibilities, the purchase of reinsurance business has also become an important way. Stochastic control theory is widely used in reinsurance and investment issues. Based on the reinsurance system architecture, this paper establishes a reinsurance delay risk investment model, which reduces the amount of claims to be borne by buying proportional reinsurance to avoid bankruptcy caused by the excessive amount of claims. By using the delayed venture capital model to describe the earnings of insurance companies, the optimal investment and reinsurance strategy are solved under the optimization criterion of minimizing the probability of bankruptcy. By analyzing the model parameter data, the influence of each parameter on optimal investment strategy and optimal reinsurance strategy is discussed.

Optimal investment risks management strategies of an economy in a financial crisis

2018 ◽  
Vol 05 (01) ◽  
pp. 1850003 ◽  
Author(s):  
Charles I. Nkeki
Keyword(s):  
Financial Crisis ◽  
Stock Returns ◽  
Linear Combination ◽  
Stock Exchange ◽  
Management Strategies ◽  
Efficient Frontier ◽  
Real Data ◽  
Optimal Investment ◽  
Lagrangian Multiplier ◽  
Investment Portfolio

In this paper, we consider a strategic management of investment risks of an economy that faces financial crisis. The assets consider are multiple stocks and multiple fixed assets. Asset of the economy is a linear combination of portfolio weights and the expected stock returns plus a linear combination of the price of fixed and quantities of assets. Also, the debt profile, consumption and income growth of the economy are studied. The resulting optimization problem was solved by the method of Lagrangian multiplier. The aims of this paper are to determine the (i) mean–variance investment portfolio of the economy, (ii) optimal investment of the economy, (ii) optimal debt ratio of the economy, (iii) efficient frontier for the economy (iv) global minimum risks in the investment portfolio. Empirical results using real data collected from Nigerian Stock Exchange are considered.

Worst-Case Investment Strategy with Delay

2018 ◽  
Vol 6 (1) ◽  
pp. 35-57
Author(s):  
Chunxiang A ◽  
Yi Shao
Keyword(s):  
Financial Market ◽  
Normal State ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Model Parameters ◽  
Investment Strategies ◽  
Case Scenario ◽  
Worst Case ◽  
Risky Assets ◽  
Investment Optimization

AbstractThis paper considers a worst-case investment optimization problem with delay for a fund manager who is in a crash-threatened financial market. Driven by existing of capital inflow/outflow related to history performance, we investigate the optimal investment strategies under the worst-case scenario and the stochastic control framework with delay. The financial market is assumed to be either in a normal state (crash-free) or in a crash state. In the normal state the prices of risky assets behave as geometric Brownian motion, and in the crash state the prices of risky assets suddenly drop by a certain relative amount, which induces to a dropping of the total wealth relative to that of crash-free state. We obtain the ordinary differential equations satisfied by the optimal investment strategies and the optimal value functions under the power and exponential utilities, respectively. Finally, a numerical simulation is provided to illustrate the sensitivity of the optimal strategies with respective to the model parameters.

scholarly journals On the Stochastic Optimal Control Model of the Investments of Defined Contribution (DC) Pension Funds

2020 ◽  
Vol 24 (2) ◽  
pp. 63-269
Author(s):  
T. Latunde ◽  
O.O. Esan ◽  
J.O. Richard ◽  
D.D. Dare
Keyword(s):  
Sensitivity Analysis ◽  
Optimization Problems ◽  
Absolute Risk ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Pension Funds ◽  
Model Parameters ◽  
Defined Contribution ◽  
Risky Assets ◽  
Hamilton Jacobi Bellman

One of the major problems faced in the management of pension funds and plan is how to allocate and control the future flow of contribution likewise the proportion of portfolio value and investments in risky assets. In this work, optimal investment for a stochastic model of a Defined contribution (DC) is investigated such that the model design is analysed yielding an optimized expected utility of the members’ terminal wealth. An optimized solution is derived using the Hamilton Jacobi equation in solving the problem of investment strategy formulated by Constant absolute risk aversion (CARA). However, to consider the changes that occur in the dimension of optimal solutions in optimization problems, mostly, the optimal behaviour of parameters, the sensitivity analysis is considered. Thus, the analysis of the model is carried out herein by utilising the approach of the sensitivity analysis of parameters. This is carried out by using Maple software and varying the values of some model parameters such that the behaviour of each parameter relating to the pension funds invested in the risky assets is determined. The results are presented graphically and using tables thus discussed such that pension investors and stakeholders are advised. Keywords: Stochastic; DC Pension funds; Sensitivity analysis; Hamilton-Jacobi-Bellman equation; Optimal investment

Advantages and Disadvantages of Contemporary Methods for Evaluation of Efficiency of Investment in Intellectual Property Items

10.12737/6729 ◽  
2014 ◽  
Vol 2 (6) ◽  
pp. 15-22
Author(s):  
Левкина ◽  
Nataliya Levkina
Keyword(s):  
Intellectual Property ◽  
Portfolio Management ◽  
Optimal Investment ◽  
Efficiency Evaluation ◽  
Financial Assets ◽  
Investment Portfolio ◽  
Investment Projects ◽  
Advantages And Disadvantages ◽  
Traditional Classification ◽  
Rational Combination

Contemporary methods of investment projects’ efficiency evaluation are based on such fundamental finance theories as J. Williams’ theory of discounted cash flows, investment portfolio management, pricing model for financial assets and the theory of options. All these theories were originally intended for analysis of investment in securities. This paper provides an overview of contemporary methods for evaluation of efficiency of investment projects connected with acquisition, development and use of intellectual property items in the frames of traditional classification, according to which they are commonly divided into three groups: financial, probabilistic and qualitative. As all financial, probabilistic and qualitative methods for evaluation of efficiency of investment in intellectual property items have their advantages and disadvantages it is recommended to use these methods’ rational combination in order to choose the optimal investment variant.

scholarly journals Optimal Investment-Consumption Strategy under Inflation in a Markovian Regime-Switching Market

2016 ◽  
Vol 2016 ◽  
pp. 1-17 ◽  
Author(s):  
Huiling Wu
Keyword(s):  
Regime Switching ◽  
Stock Price ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Power Utility ◽  
Optimal Investment Strategy ◽  
Admissible Strategies ◽  
Definition Of ◽  
Markovian Regime Switching ◽  
Optimal Investment And Consumption

This paper studies an investment-consumption problem under inflation. The consumption price level, the prices of the available assets, and the coefficient of the power utility are assumed to be sensitive to the states of underlying economy modulated by a continuous-time Markovian chain. The definition of admissible strategies and the verification theory corresponding to this stochastic control problem are presented. The analytical expression of the optimal investment strategy is derived. The existence, boundedness, and feasibility of the optimal consumption are proven. Finally, we analyze in detail by mathematical and numerical analysis how the risk aversion, the correlation coefficient between the inflation and the stock price, the inflation parameters, and the coefficient of utility affect the optimal investment and consumption strategy.

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