Optimal investment risks management strategies of an economy in a financial crisis

Abstract

In this paper, we consider a strategic management of investment risks of an economy that faces financial crisis. The assets consider are multiple stocks and multiple fixed assets. Asset of the economy is a linear combination of portfolio weights and the expected stock returns plus a linear combination of the price of fixed and quantities of assets. Also, the debt profile, consumption and income growth of the economy are studied. The resulting optimization problem was solved by the method of Lagrangian multiplier. The aims of this paper are to determine the (i) mean–variance investment portfolio of the economy, (ii) optimal investment of the economy, (ii) optimal debt ratio of the economy, (iii) efficient frontier for the economy (iv) global minimum risks in the investment portfolio. Empirical results using real data collected from Nigerian Stock Exchange are considered.