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Original Research Article
A duplicate standard asset allocation funds Methods: A tool for reducing long-run risk
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Abstract
Issues in Business Management and Economics
Vol.2 (1), pp. 009-015, January 2014
Article ID BM066, 07 pages
Copyright © 2014 Author(s) retain the copyright of this article. Author(s) agree that this article remain permanently open access under the terms of the Creative Commons Attribution License 3.0 International License
Original Research Paper
A duplicate standard asset allocation funds Methods: A tool for reducing long-run risk
Accepted 19 December, 2013
Nader Trabelsi
LARTIGE (FSEG – SFAX)Department of Finance and Investment Al Imam University – KSA, Saudi Arabia.
Tel.:+966537241723
Author Email: nadertrabelsi2003@yahoo.fr
Abstract
It seems difficult to build models that represent reality. Financial-risk models, in particular, get investors in trouble. A model is a theoretical construct which used some unrealistic hypothesizes. Since, many investors suffer now from the mis-pricing investment risk. The aim objective of this article was to test the efficiency of a strategy, incorporating some options and seeking to super-duplicate the realizations of a standard-asset allocation policy. The replication strategy allows reducing imperfections effects, and by consequence long-run risk. The replication means optimizing two objective-functions: MSE (Mean-squared Errors) and WMSE (Weighted Mean-squared Errors). Numerical tests on replication efficiency concern a long-run investment with over the country (OTC) financial options. Results proved the presence of a Buy-and-Hold portfolio based on options that is more efficient than an active trading strategy. The optimal behaviour of the economic agent is a function of the number, the type, as well as its position on the options. To fix his decision, he can negotiate with his bank one of the strategies maximizing his preferences, independently of the imperfections of the market.
Key words: Long-run risk, replication principal, standard allocation policy, portfolio management, transaction costs, derivatives market
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