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Chinese Journal of Management Science ›› 2014, Vol. 22 ›› Issue (3): 13-19.

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Rank-Reconstruction Based Constant Rebalanced Portfolios

LIU Xue-wei, HE Chang-zheng, ZHU Bing   

  1. Business School of Sichuan University, Chengdu 610064, China
  • Received:2012-04-02 Revised:2012-10-10 Online:2014-03-20 Published:2014-03-19

Abstract: The Constant Rebalanced Portfolio (CRP) is an asset allocation algorithm which keeps the same distribution of wealth among a set of assets along a period of time. The best CRP is optimal when the stock return time series is I.I.D.. However the unrealistic I.I.D. condition set the CRP back from application. By means of reconstructing the real financial data to be I.I.D., it is possible to apply the CRP to investment industry. The optimality of rank-reconstruction based Constant Rebalanced Portfolios (rankCRP proposed in this paper) is proved theoretically. And the empirical study on several markets shows the effective of rankCRP. The study sheds light on the relationship between CRP and non I.I.D. time series.

Key words: dynamic portfolio, rank-reconstruction, rankCRP

CLC Number: