Portfolio Model Research Based On WCVaR With Transaction Costs

Risk measurement model of CVaR (Conditional value-at-risk and Conditional value at risk) hasmany advantages, it makes up for the model of VaR (value-at-risk, value at risk), and also meets therequirements of Coherent Risk Measurement. Therefore, it is popular among the risk managers. But inthe process of calculation, we must know the distribution of the random variable in advance. However,we can’t know the whole information of the random variable, because of the financial markets is ofteninfluenced by a variety of complicated factors in the reality, especially in our country, the securitiesmarket is imperfect. So the financial market volatile very much. Under that circumstance, the efficiencyof CVaR risk measurement model is low. As for the defects, Zhu-FuKushima put forward theConditional value at risk under the worst-case scenario, here referred to WCVaR (Worst-case CVaR),it depicts the risk under incomplete information, in reality, we can’t predict the result of something, sowe often consider what the Worst case happens, so as to predict risk better.This paper study the return-on-assets obey the mixed distribution of WCVaR model, and add theproportional transaction costs function to the model,which makes the model much more closer toreality. Then use VAR model yields the return-on-assets future path, so we can get the distribution ofthe residuals after regression, according to the distribution of residuals, and then combined with theMonte Carlo method to generate the future return-on-assets. In this paper, we consider the lossfunction is the linear, in such condition, we can transformed the uncertainty linear programmingproblem into a certain linear programming problem. We can use LP module to solve the problem inMATLAB.The results show that the model of WCVaR with transaction costs is better than the modelwithout that. In short, the new model in my paper have a certain guiding significance for investors inthe real word.