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Portfolio selection risk investment institutions

Author: ZhaoPengJu
Tutor: LiuYuMin
School: Zhengzhou University
Course: Management
Keywords: Venture Capital Portfolio Dynamic Programming Knapsack problem
CLC: F830.59
Type: Master's thesis
Year: 2004
Downloads: 292
Quote: 3
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Abstract

Modern venture capital industry is starting in the 1940s in the United Kingdom, the prosperity and development of a high-risk, high-yield financial industry in the United States. Modern venture capital industry has played an important role to promote the development of high-tech industries, promote the growth of the national economy. The nature of the venture capital industry, venture capital institutions must obtain a high level of income by a high level of risk management skills and a wealth of risk management instruments. In theory, the risk investors can maintain the desired constant returns case through the portfolio to reduce risk. So, how to choose a reasonable portfolio to maximize the expected revenue in a certain level of risk, or in a certain level of expected return on risk minimization becomes a subject worthy of study for venture capital enterprises. The sign of the birth of modern portfolio theory the U.S. economist Markowitz 1952 paper \Markowitz seen as the yield of the investment object is a random variable, the proposed variance to describe risk, the famous EV (mean - variance) model, with the expectations described in revenue. Portfolio theory has made considerable progress in recent decades, many theories have been applied and achieved good results. Markowitz, Sharpe established a single-exponential model, taking into account the risk-free assets and risky assets portfolio. Subsequent MAO's more convenient to solve linear programming model, in addition to Jacob the restricted assets dispersion model and Konno Mean - variance - skewness combination model. In 1980, Lee proposed goal programming model, 1996 the Tamiz on Lee's goal programming model has been improved. But most of these theories surrounding the securities market to expand, can not be fully applicable to the venture capital industry. For venture capital institutions, often face is to invest or not to invest in a project, using the language of mathematics to describe is a 0-1 programming problem. Venture capital can be seen as a knapsack problem. We can consider the institutions of venture capital funding limit is like a backpack, candidate projects like the one items, the issues to be considered by the decision-makers is how to make the value of goods loaded in the backpack. Two purposes: in order to effectively solve the problem of venture capital, the paper uses dynamic programming method established risk investment issues knapsack problem model, described in the utility function value function of the knapsack problem, the utility function portfolio of minimum risk and benefits of the largest organic combination. The model can be given according to the level of investor risk aversion, the optimal portfolio for its risk appetite. Furthermore, the paper examines the optimal combination of adding the risk-free asset, and gives an example of the solution. Risk assets and the risk-free asset portfolio, we conclude that, for venture capital institutions, with risk-free borrowing (such as bonds) the opportunity to further reduce risk and improve profitability. This paper is divided into four parts, the first discusses the content and purpose of the venture capital industry background and this study, and the risk of investment portfolio concepts and theories discussed Finally, the use of dynamic programming to solve the venture capital mathematical model of portfolio choice, given the conclusions of the study.

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