Asset Allocation in a Bayesian Copula-Garch Framework PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Asset Allocation in a Bayesian Copula-Garch Framework PDF full book. Access full book title Asset Allocation in a Bayesian Copula-Garch Framework by Long Kang. Download full books in PDF and EPUB format.
Author: Long Kang
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
We solve the asset allocation problem where investors choose to invest among risk-free assets, a passively managed index fund, and an actively managed fund. Asset allocation is based on the maximization of expected utility in a one-period time frame-work and the excess returns of two funds are modeled by a copula-GARCH model which captures most non-normal features of the data. Estimation risk of the copula-GARCH model is dealt with by a Bayesian approach where the posterior distributions of the parameters are drawn by the quot;Metropolis within Gibbsquot; algorithm. We apply our model to the quot;passive funds versus active fundsquot; problem with three asset categories-quot;large Capquot; funds, quot;small Capquot; funds and international stock funds, and test the models in an out-of-sample manner. Our results show significant percentage of holdings in the active fund with different risk levels of risk aversion for all the three asset groups. This implies that the actively managed funds do make a valuable contribution in the portfolio constructions for a wide range of investors. Secondly, with low risk version, the Bayesian copula model suggests very similar weights in the active fund as other classical models. However, with increasing risk aversion, the Bayesian model implies more conservative weights in the active fund. Moreover, in terms of realized returns and utilities, there is no sharp difference of performance between Bayesian and classical models as they all have some cases with the highest realized returns or utilities. However, as the risk aversion increases, the Bayesian model leads to significantly lower volatility of the realized out-of-sample returns and utilities.
Author: Long Kang
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
We solve the asset allocation problem where investors choose to invest among risk-free assets, a passively managed index fund, and an actively managed fund. Asset allocation is based on the maximization of expected utility in a one-period time frame-work and the excess returns of two funds are modeled by a copula-GARCH model which captures most non-normal features of the data. Estimation risk of the copula-GARCH model is dealt with by a Bayesian approach where the posterior distributions of the parameters are drawn by the quot;Metropolis within Gibbsquot; algorithm. We apply our model to the quot;passive funds versus active fundsquot; problem with three asset categories-quot;large Capquot; funds, quot;small Capquot; funds and international stock funds, and test the models in an out-of-sample manner. Our results show significant percentage of holdings in the active fund with different risk levels of risk aversion for all the three asset groups. This implies that the actively managed funds do make a valuable contribution in the portfolio constructions for a wide range of investors. Secondly, with low risk version, the Bayesian copula model suggests very similar weights in the active fund as other classical models. However, with increasing risk aversion, the Bayesian model implies more conservative weights in the active fund. Moreover, in terms of realized returns and utilities, there is no sharp difference of performance between Bayesian and classical models as they all have some cases with the highest realized returns or utilities. However, as the risk aversion increases, the Bayesian model leads to significantly lower volatility of the realized out-of-sample returns and utilities.
Author: Luca Riccetti
Publisher:
ISBN:
Category :
Languages : en
Pages : 29
Get Book Here
Book Description
Author: Peter Gareth Fredric McEwan
Publisher:
ISBN:
Category : Extreme value theory
Languages : en
Pages : 278
Get Book Here
Book Description
Author: Hamed Naeini
Publisher:
ISBN:
Category :
Languages : en
Pages : 95
Get Book Here
Book Description
The title of this thesis is Conditional Value at Risk Asset Allocation, A Copula Based Method, and it is written by Hamed Naeini. The thesis supervisor is Professor Thomas J. Walker. Using a non-parametric bootstrapping method, we allocate funds to eleven preselected asset classes based on a series of conditional value at risk and variance criteria. Next, we employ copulas to model the data and build our comparison portfolios. We compare the results of the two methods during both bull and bear markets conditions. We find that model-based asset allocation significantly improves the performance of portfolios during financial crises. Under normal market conditions, the two methods result in comparable performance. We conclude that our optimization procedure provides asset allocation strategies that result in portfolios that perform at least as well as portfolios constructed based on the commonly used bootstrapping method and significantly better during periods of financial turmoil.
Author: Claudia Czado
Publisher:
ISBN: 9783030137861
Category : Copulas (Mathematical statistics)
Languages : en
Pages :
Get Book Here
Book Description
This textbook provides a step-by-step introduction to the class of vine copulas, their statistical inference and applications. It focuses on statistical estimation and selection methods for vine copulas in data applications. These flexible copula models can successfully accommodate any form of tail dependence and are vital to many applications in finance, insurance, hydrology, marketing, engineering, chemistry, aviation, climatology and health. The book explains the pair-copula construction principles underlying these statistical models and discusses how to perform model selection and inference. It also derives simulation algorithms and presents real-world examples to illustrate the methodological concepts. The book includes numerous exercises that facilitate and deepen readers understanding, and demonstrates how the R package VineCopula can be used to explore and build statistical dependence models from scratch. In closing, the book provides insights into recent developments and open research questions in vine copula based modeling. The book is intended for students as well as statisticians, data analysts and any other quantitatively oriented researchers who are new to the field of vine copulas. Accordingly, it provides the necessary background in multivariate statistics and copula theory for exploratory data tools, so that readers only need a basic grasp of statistics and probability.
Author: Bernhard Pfaff
Publisher: John Wiley & Sons
ISBN: 1119119677
Category : Mathematics
Languages : en
Pages : 448
Get Book Here
Book Description
Financial Risk Modelling and Portfolio Optimization with R, 2nd Edition Bernhard Pfaff, Invesco Global Asset Allocation, Germany A must have text for risk modelling and portfolio optimization using R. This book introduces the latest techniques advocated for measuring financial market risk and portfolio optimization, and provides a plethora of R code examples that enable the reader to replicate the results featured throughout the book. This edition has been extensively revised to include new topics on risk surfaces and probabilistic utility optimization as well as an extended introduction to R language. Financial Risk Modelling and Portfolio Optimization with R: Demonstrates techniques in modelling financial risks and applying portfolio optimization techniques as well as recent advances in the field. Introduces stylized facts, loss function and risk measures, conditional and unconditional modelling of risk; extreme value theory, generalized hyperbolic distribution, volatility modelling and concepts for capturing dependencies. Explores portfolio risk concepts and optimization with risk constraints. Is accompanied by a supporting website featuring examples and case studies in R. Includes updated list of R packages for enabling the reader to replicate the results in the book. Graduate and postgraduate students in finance, economics, risk management as well as practitioners in finance and portfolio optimization will find this book beneficial. It also serves well as an accompanying text in computer-lab classes and is therefore suitable for self-study.
Author: Attilio Meucci
Publisher: Springer Science & Business Media
ISBN: 3642009646
Category : Business & Economics
Languages : en
Pages : 547
Get Book Here
Book Description
Discusses in the practical and theoretical aspects of one-period asset allocation, i.e. market Modeling, invariants estimation, portfolia evaluation, and portfolio optimization in the prexence of estimation risk The book is software based, many of the exercises simulate in Matlab the solution to practical problems and can be downloaded from the book's web-site
Author: Umberto Cherubini
Publisher: John Wiley & Sons
ISBN: 0470863455
Category : Business & Economics
Languages : en
Pages : 310
Get Book Here
Book Description
Copula Methods in Finance is the first book to address the mathematics of copula functions illustrated with finance applications. It explains copulas by means of applications to major topics in derivative pricing and credit risk analysis. Examples include pricing of the main exotic derivatives (barrier, basket, rainbow options) as well as risk management issues. Particular focus is given to the pricing of asset-backed securities and basket credit derivative products and the evaluation of counterparty risk in derivative transactions.
Author: Riccardo Rebonato
Publisher: John Wiley & Sons
ISBN: 0470091401
Category : Business & Economics
Languages : en
Pages : 864
Get Book Here
Book Description
In Volatility and Correlation 2nd edition: The Perfect Hedger and the Fox, Rebonato looks at derivatives pricing from the angle of volatility and correlation. With both practical and theoretical applications, this is a thorough update of the highly successful Volatility & Correlation – with over 80% new or fully reworked material and is a must have both for practitioners and for students. The new and updated material includes a critical examination of the ‘perfect-replication’ approach to derivatives pricing, with special attention given to exotic options; a thorough analysis of the role of quadratic variation in derivatives pricing and hedging; a discussion of the informational efficiency of markets in commonly-used calibration and hedging practices. Treatment of new models including Variance Gamma, displaced diffusion, stochastic volatility for interest-rate smiles and equity/FX options. The book is split into four parts. Part I deals with a Black world without smiles, sets out the author’s ‘philosophical’ approach and covers deterministic volatility. Part II looks at smiles in equity and FX worlds. It begins with a review of relevant empirical information about smiles, and provides coverage of local-stochastic-volatility, general-stochastic-volatility, jump-diffusion and Variance-Gamma processes. Part II concludes with an important chapter that discusses if and to what extent one can dispense with an explicit specification of a model, and can directly prescribe the dynamics of the smile surface. Part III focusses on interest rates when the volatility is deterministic. Part IV extends this setting in order to account for smiles in a financially motivated and computationally tractable manner. In this final part the author deals with CEV processes, with diffusive stochastic volatility and with Markov-chain processes. Praise for the First Edition: “In this book, Dr Rebonato brings his penetrating eye to bear on option pricing and hedging.... The book is a must-read for those who already know the basics of options and are looking for an edge in applying the more sophisticated approaches that have recently been developed.” —Professor Ian Cooper, London Business School “Volatility and correlation are at the very core of all option pricing and hedging. In this book, Riccardo Rebonato presents the subject in his characteristically elegant and simple fashion...A rare combination of intellectual insight and practical common sense.” —Anthony Neuberger, London Business School
Author: Umberto Cherubini
Publisher: John Wiley & Sons
ISBN: 1119954525
Category : Business & Economics
Languages : en
Pages : 287
Get Book Here
Book Description
The latest tools and techniques for pricing and risk management This book introduces readers to the use of copula functions to represent the dynamics of financial assets and risk factors, integrated temporal and cross-section applications. The first part of the book will briefly introduce the standard the theory of copula functions, before examining the link between copulas and Markov processes. It will then introduce new techniques to design Markov processes that are suited to represent the dynamics of market risk factors and their co-movement, providing techniques to both estimate and simulate such dynamics. The second part of the book will show readers how to apply these methods to the evaluation of pricing of multivariate derivative contracts in the equity and credit markets. It will then move on to explore the applications of joint temporal and cross-section aggregation to the problem of risk integration.
