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Risk Measurement and Optimal Steategy Selection of Portfolio Based on SV Model and COPULA

Author: XuShaoLi
Tutor: GuoWenZuo
School: Nanjing University of Finance and Economics
Course: Finance
Keywords: Portfolio Optimization SV model Copula function CVaR
CLC: F830.59
Type: Master's thesis
Year: 2010
Downloads: 137
Quote: 0
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Abstract


Portfolio theory is one of the important research topic in the Finance, its purpose is to seek an optimal portfolio to minimize investment risk in a given level of return, or risk given the returns to investors technology. In order to break through the traditional Markowitz mean - variance model risk measurement methods and limitations of normal distribution assumption, we must apply the new risk measurement methods, while looking for a more suitable joint distribution, this choice for the measure of portfolio risk and the optimal investment strategy a crucial role. Risk measure proposed in recent years new methods of risk measurement - VaR, on CVaR CVaR, has become the topics at the forefront of research in financial risk management; the Copula function compared to strike a joint distribution function provides a convenient, accurate channel, you can solve the non-normality assumption solving the joint distribution of the portfolio, thereby overcoming many of the inadequacies of the traditional normal distribution assumed. This paper studies the content is based on the Mean-CVaR portfolio optimization problem, Copula function, SV model, CVaR and Monte Carlo simulation techniques to solve the portfolio between different asset nonnormality, nonlinear correlation asset portfolio choice and risk metrics provide a new solution ideas. The object of this study by the Shanghai Composite Index and Shenzhen Component Index as well as a portfolio of Hang Seng Index, types of heteroscedasticity models - GARCH and SV Models - A Comparative Study, found that the SV-t model to characterize risk assets distribution yield more advantages; After modeling the marginal distributions of of single risk assets yield, especially through the goodness of fit test several Copula function, so select the appropriate Copula function - t-Copula - build a portfolio structure; Finally, the SV-t model and t-Copula function simultaneously applied to the portfolio risk measure based on the Mean-CVaR optimal portfolio strategy selection problem, to find more the joint distribution of the portfolio in line with the actual market in China, and finally get a combination of more realistic strategy selection results. The empirical results show that on Copula-SV-t, t-model in two aspects are superior to the traditional model of risk measurement and portfolio strategy.

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