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Dynamic Asset Allocation

Presented By

Md. Golam Muqtadir Roll:11-169 MBA 11th Batch

Selected Companies
AB Bank

Bank Asia Summit Power Jamuna Oil Renata Square Heidelburg Cement Confidence cement Bextex Apex Spinning

Assumptions
Total amount of investment is BDT 10,00,000. T bill rate is 4.67% (91 days T-bill Rate). Price data is collected mainly for 3 months: July, August and September of 2010, as I have considered investment horizon to be in the year 2011. Continuous compounded risk free rate is assumed. The amount of Tk. 10,00,000 will be distributed among the 10 securities equally. Initial distribution of total fund is considered to be 50: 50 in securities and T-bills.

100% Equity
Selected Companies AB Bank Bank Asia Summit Power Jamuna oil Renata Square Heidelburg Cement Confifidence cement Bextex Apex Spinning 85,841.79 91,635.41 10,197.98 107,579.16 109,516.51 89,907.38 114,197.48 112,798.39 112,050.08 114,599.34 July August 92,666.97 90,146.24 100,668.19 92,678.57 93,912.06 92,507.87 76,762.79 94,191.59 117,878.20 101,130.29 September 96,290.89 109,434.87 94,202.47 96,903.21 94,088.00 106,666.75 108,200.10 139,916.56 89,795.89 129,962.20

50% Equity + 50% Risk Free Asset

It is a common practice to invest in the risk free government security which is default free. In case of 50% equity investment strategy I have invested 50% of the total available investment amount in equity securities in a similar manner followed in 100% equity securities. The remaining 50% of the initial investment amount is invested in 91days T-Bill. In each month the amount available from the previous month is reinvested in that respective months 91 days TBill rate adjusted monthly.

Dynamic Asset Allocation

Initial Delta 0.5

July 0.31

August 0.43

September 0.19

Buy (sell) Share

(92254.99)

(30473.72)

(74956.25)

Buy (Sell) T-Bill

92254.99

30473.72

74956.25

Dynamic Asset Allocation (Contd)

From the table we can observe that the delta value has been changed with the course of time. The value decreased in July and then increased in August drastically and again decreased in September. To adjust the delta value the buy/sell decisions of equity and T-Bill have been taken in every month. There were sell decisions of equity in all 3 months. In case of T-Bill, there were buy decisions in every 3 months.

Static Vs Dynamic
Static Vs. Dynamic

1,200,000 1,000,000 800,000 600,000 400,000 200,000 July August September Static Dynamic

Findings

Any Query?

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