Modeling of the financial market – the Kim–Markowitz type model for large and small investors

Abstract

In the paper we consider a Kim–Markowitz type financial market model. We change the basic model (used in 1988 by Kim and Markowitz) and we add two groups of investors in relation to the size of the initial portfolio. The so-called small investors start with 100 000 $ (as in the Kim–Markowitz model), and so-called large investors start with 4 900 000 $. We want to check if the portfolio insurance strategy has a greater impact on small or large investors. First, we analyze simulations with rebalancers only, and we investigate whether a bigger difference of the initial percentage of shares in the portfolio among small and large investors will make one of these groups richer at the end of the simulation. Next, we add also Constant Proportion Portfolio Insurance investors. It is shown that in the normal/regular market (without very high intraday volatility of the stock price) the group of large investors obtain better result than the group of small investors. The existence of CPPI (constant proportion portfolio insurance) investors on the market makes the intraday volatility higher and so in there markets the large investors perform worse than small one.