Risk Measurement Portfolio Investment Model Supporting Process Integration and its Algebraic Solution

Abstract

In the securities market full of risks and opportunities, when investing in securities, both individual and institutional investors always take the safety and liquidity of investment funds as the premise, and rationally use investment funds to achieve the purpose of lower risks and higher returns. Markowitz established a portfolio investment decision model with the variance of securities return rate as the measure of investment risks, and selected the optimal portfolio. This paper analyzes the shortcomings of Markowitz model based on supporting process integration, and puts forward the risk objective function of optimal portfolio selection based on semivariance (E-Sh) risk measure. By simplifying and analyzing the equation, under certain conditions, the nonlinear option pricing model is transformed into a linear equation type, and the specific time-dependent option pricing formula with transaction costs is obtained.