Research on Central Control DDSS System for Fund Portfolio Management
Cheng Hu ， Er-shi Qi
(Management School of Tianjin University, Tianjin, China, 300072)
(chenghuca@hotmail.com)
Abstract - In order to satisfy the demand of fund
portfolio management and based on the feature of balancing
in the central control and distribution decision, a central
control DDSS is schemed based on the systemization of
decision-making theory. The scheme provides a balance
point of a dynamic management, and makes the fund
investment more controllable and flexible.
Keywords - Portfolio management; systemization of
decision-making; Distributed Decision Support System
(DDSS).
I. INTRODUCTION
The basic principle of portfolio management is
making investment scattered in many different kinds of
assets by a certain percentage under the standard of
investor risk appetite, to achieve the goal of utility
maximization [1]. In fact, investment funds reflect this
concept of a portfolio management. Investment fund is a
portfolio of investments, including various securities and
assets; investor who purchases a fund is equivalent to
purchase a group of company's stocks or a combination of
different asset classes.
In practice, investment funds sometimes are
decentralized managed by several different managers,
rather than managed by a single manager. Large fund
management companies will choose several managers to
form a combination of investment managers, or consider
the use of three to five funds to compose a Fund group.
This is actually a portfolio management concept that
spread the risks of investment objectives to different
managers. Individuals have different risk preferences and
profitability goals in different environments, a particular
combination of the investment managers will wash away
the non-rational deviation through their own independent
operations to achieve both portfolio risk and profitability
objectives.
Distributed Decision Support System (DDSS) is a
tool that is compatible with this multi-team portfolio
management style. DDSS is the combination of
distributed decision-making method, distributed databases,
distributed operating system and distributed supporting [2].
The supporting environment for DDSS is a computer
network which is constituted by various physically
separated processing information node, each node of the
network contains at least one decision-making supportive
system or a number of decision supporting functions [3].
Comparing with the centralized DSS, this distributed
decision supporting system is closer to the actual situation
of large-scale organizational decision-making activities,
especially related to fund management system which is an
organization that has a team of decision-makers with
different responsibilities in a multi-level decision-making
system.
But the idea of the classic distributed decision
supporting system is to consider each individual decisionmakers or decision-making organization as an
independent, physically separated processing information
node and the system provides individual, group and
organizational support for processing and decisionmaking in these nodes [4]. Thus, the fully independent
decision-making of each node and multi-team
management of investment fund is different in reality.
When multi-team of traders is operating the fund, the total
amount of funds is always limited, the funds between the
various teams are allocated, and the funds for each team
in the selection of investment targets and resources are
also limited. Therefore, central control has become
necessary in DDSS system.
II.THEORY
Systemization of decision-making theory is
originally introduced by Herbert Simon [5]. He introduced
the concept of systemization of decision-making after he
studied a large number of highly organized linear
programming applications, and tried to implement the
method to solving company problems [6]. The decision
comes from the detailed analysis and discussion in
advance, gets the understanding of participants to input
defined data, and generates decision in the form consistent
with the expected results [7]. So we can determine in
advance a type of decision that is wanted, run a series of
fixed calculation, and get the expected result which is in
line with organizational objectives [8].
If the decision-making process is systemized, it can
be prepared in routinization, so that you can delegate the
task to first-line manager with independent decisionmaking [9]. Given controlled constraints and values within
the expected range, they can make independent decisions.
In this case, all decisions are constrained under the
systemization of decision-making process. Decisionmaking process starts with restriction when developing
decision. Another major restriction in decision-making
process is that the available resources. These resources
include the personnel and tools for decision-making that
can be arranged. It is the restrictions that constitute a
central control of distributed decision making.
The systemization of decision-making model can be
expressed as shown in Figure:
However, the structure of such systemized decisionmaking model lacks the control over decision-making in
the system. As mentioned earlier, in order to systemize a
DDSS, the DDSS model should also include a common
database, a common model base, a common method base,
and a common knowledge base. These four libraries are
the constraints for all the subsystem when it comes to
decision making. Comparing portfolio management in
practice with DDSS, the common database stores data
regarding fund managers team goals and the allocation of
the resources; method base stores data that represents
portfolio managers investment combinations and risk
control policies; model base holds models to processing
asset valuation and risk assessment formulas; knowledge
base is the storage for the various subsystems decisionmaking results, and it also make adjustments to the other
three database’s constraint and algorithm.
A DDSS model with the four libraries as mentioned
above is shown in
Figure2:
Figure 1: A systemized decision-making model
All decision-making runs in a systemized decisionmaking model under the constraints of a linear program.
The top management will not make many decisions by
following one routine; they are only responsible for
setting the rules of first-line managers in decision-making.
The systemization of decision-making system is
developed analysis discussed previously with the
understanding of the participants. By inputting defined
data, the result produced by the system will meet our
expectation. They can pre-determine the action of
subordinates or the computer analysis. Subordinates or
computer will follow the series of fixed calculation to
achieve the expected results. This hierarchical decisionmaking process provides the basic concept of central
control for the distributed decision support system in
reality.
III.MODEL
In the DDSS classic model, each subsystem has its
own database, model base and method base system. Data
resources and decisions made are exchanged on each node
through network information system [10]; the result of
processing all nodes would give us the final decision. This
design emphasizes: the exchanges between the nodes,
independent decision-making of the node, as well as the
combined result of all decision made by all the
independent nodes.
Figure 2: central control DDSS
In the above DDSS model, the four public database
access the DDSS through the network information system,
all independent decision-making subsystems use data
from all four common database and provides result under
the given constraints. In general, the four common
databases require constraints inputted through the man-
machine interface. In some special cases, these data can
come from an intelligent decision support system with
specialized control indicators.
IV.APPLICATION
Based on the above structure of DDSS model, a
DDSS model with multi-management and central control
is developed, as shown in Figure 3:
V.CONCLUSION
In this paper, in order to satisfy the demand of fund
portfolio management and based on the feature of
balancing between central control and distribution
decision, a systemized central control DDSS scheme for
portfolio management is proposed. By introducing the
systemization of decision-making theory and model, and
adding overall resource constraints and operational
constraints of a central database onto the classic DDSS
model, the DDSS model is more controllable and flexible
for a dynamic portfolio management in terms of balancing
between the central control and distribution decision of
DDSS model.
REFERENCE:
[1] Edwin J. Elton, Martin J. Gruber, Stephen J. Brown,
[2]
[3]
[4]
[5]
[6]
[7]
Figure 3: DDSS model with multi-management and central control
In this framework, the portfolio management
committee inputs the investment funds, investment
objectives, portfolio principles and other fund associated
data to DDSS. Decision-making support system
decomposes all managers’ constraints into the four
libraries, and they will become indicators and constraints
in manager’s decision-making process. At the same time,
the knowledge base, model base and database provides
the supporting environment for the subsystem on decision
making by providing target parameters, constraints, and
some general data, which determine the overall system
control of the portfolio. Fund Manager of each team has
its own independent decision support system, and they are
the subsystem of a DDSS. This subsystem can be
structure to be used by a single decision maker’s DDS.
Depending on the fund manager’s knowledge of
intelligent tools, the subsystem can be structured for a
single decision-maker with a smart DDS. Fund managers
make decisions under the above constraints and
environment with their own judgments.
[8]
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ABOUT THE AUTHORS
QI Er-shi (1954 -), Male, Professor, Doctor Tutor, Tianjin
University, is engaged in the research in various fields of
industrial engineering. Management School, Tianjin
University, Tianjin 300072, China. Tel (022) 27405100
HU Cheng (1954 -), Male, Chairman of the Board for Hong
Kong Licheng Capital Group, is engaged in investment
banking industry. No. 43 Queen's Road East, Hong Kong,
Room 1607, telephone (852) 68762311