Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/275002 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 15 [Issue:] 10 [Article No.:] 482 [Year:] 2022 [Pages:] 1-14
Publisher: 
MDPI, Basel
Abstract: 
Portfolio optimisation aims to efficiently find optimal proportions of portfolio assets, given certain constraints, and has been well-studied. While portfolio optimisation ascertains asset combinations most suited to investor requirements, numerous real-world problems impact its simplicity, e.g., investor preferences. Trading restrictions are also commonly faced and must be met. However, in adding constraints to Markowitz's basic mean-variance model, problem complexity increases, causing difficulties for exact optimisation approaches to find large problem solutions inside reasonable timeframes. This paper addresses portfolio optimisation complexities by applying the Worst Case GARCH-Copula Conditional Value at Risk (CVaR) approach. In particular, the GARCH-copula methodology is used to model the portfolio dependence structure, and the Worst Case CVaR (WCVaR) is considered as an alternative risk measure that is able to provide a more accurate evaluation of financial risk compared to traditional approaches. Copulas model the marginal of each asset separately (which may be any distribution) and also the interdependencies between assets This allows an accurate risk to investment assessment to be applied in order to compare it with traditional methods. In this paper, we present two case studies to evaluate the performance of the WCVaR and compare it against the VaR measure. The first case study focuses on the time series of the closing prices of six major market indexes, while the second case study considers a large dataset of share prices of the Gulf Cooperation Council's (GCC) oil-based companies. Results show that the values of WCVaR are always higher than those of VaR, demonstrating that the WCVaR approach provides a more accurate assessment of financial risk.
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.