A THEORETICAL MODEL FOR PORTFOLIO OPTIMIZATION DURING CRISIS
DOI:
https://doi.org/10.11113/jt.v78.9006Keywords:
Generalized hyperbolic distribution, portfolio optimizationAbstract
The premise of this paper is providing a theoretical model for a novel way to portfolio optimization using generalized hyperbolic distribution during crisis with risk measures, expected shortfall and standard deviation. Getting good expected returns from investing in portfolio assets like stocks, bonds and currencies during crisis period chosen is harder where the risks cannot be diverted because of disruptive financial jolts i.e. sudden and unprecedented events like subprime mortgage crises in 2008. Multivariate generalized hyperbolic distribution on joint distribution of risk factors from stocks, bonds and currencies is used because it can simplify the risk factors calculation by allowing them to be linearized. The results show the premise is true. The contributions are discovering both the appropriate probability distribution and risk measure will determine whether the portfolio is optimal or not. The practical application will be taking care of the risk to take care of the profit.
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