Leverage Research Of Umbrella Trust Product Based On Specific Stock Position

With the increasing of A shares index from2000to3200points or40%higher since second half of2014, the umbrella trust business has been explosive growing. The umbrella trust business is a structured securities investment products for investor in secondary securities market, which is produced by the cooperation of financial institution like trust companies, security companies, banks and combines of each advantages of each company. Specifically, it is a product that banks invest their finance in the form of trust products into stock market in the way of financing or rising in leverage. The invest structure is that setting a lot of trade sub-units in one trust channel, which a parent account can be divided into about50virtual accounts. In according to contract, bank finance has its beneficial right of the priority. And the other potential customs just get their secondary beneficial right which also means residual equity after cutting bank’s revenge and each spending out.The prior research question is how to take the initiative to manage risk for these trust companies which has the umbrella trust business. And the core of the umbrella trust business is setting leverage ratio. The reasonable leverage can both control the market risk and ensure the efficiency of funds usage. However, domestic umbrella trust business always sets a static leverage ratio, which means each stock portfolio or single specific stock has same leverage ratio. The system can not really reflect the fluctuation of stock market. With the increasing of the scales of the umbrella trust business, this static leverage system may cause some adverse affect on the development of the secondary market. So in this paper, we want to take some advice to modify the leverage model from the perspective of dynamic leverage ratio. Although, we think with the development of the umbrella trust business, trust company will eventually turn their static leverage to dynamic leverage system. But in reality, dynamic leverage system may not be implemented in a short time for the reasons like that trust company does not have dynamic risk early warning system for each unit of umbrella trust or there is not relevant rules or policy. So in paper, we will suggest a elastic leverage model from perspective of dynamic leverage ratio, which will change the ratio with the different investment or time.What’s more, the risk of secondary finance market refers to loss of all stocks which are held by the relevant in the normal trade condition. And in theory, in the phase of further development of umbrella trust, the leverage ratio will be not set according to extreme theory or covering extreme fluctuation of stock market. Also this is why we use VaR method as the basic model of leverage ratio for single stock in umbrella trust business. In consideration of the time-varying characteristics of loss ratio sequence of specific stock in umbrella trust business, we use GARCH, SV to fitting loss rate sequence and predict loss ratio’s VaR for three consecutive trading days. Then we set these three days as risk period and calculate the VaR for predicting max loss ratio. At last we can get the final elastic leverage ratio for different time and stock for secondary investors.