A portfolio optimization model under the conditions of market friction based on spectral risk measure
Yong Yang · Journal of Beijing University of Chemical Technology · 2012
This paper describes the design and formulation of a logarithmic risk spectrum,and the construction of the spectral risk measure(SRM).On the basis of SRM,we analyze and incorparate some actual conditions in real markets such as market friction and asset allocation proportion bounds.Then,we use the empirical distribution of the population distribution of the rate of return to obtain the portfolio optimization model.Finally we translate this to a non-linear optimization model which is easy to solve and has the required robustness.The empirical analysis shows that decreasing the transaction cost of market friction can substantially reduce the risk and ensure the required return rate.Furthermore,the model we have established can deal with the portfolio allocation rationally and effectively.