Application of GARCH-Copula Model in Portfolio Optimization

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F15%3A86094574" target="_blank" >RIV/61989100:27510/15:86094574 - isvavai.cz</a>

Result on the web

<a href="http://fai.econ.muni.cz/2015/2/63" target="_blank" >http://fai.econ.muni.cz/2015/2/63</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.5817/FAI2015-2-1" target="_blank" >10.5817/FAI2015-2-1</a>

Result language

angličtina

Original language name

Application of GARCH-Copula Model in Portfolio Optimization

Original language description

Although the cornerstone of modern portfolio theory was set by Markowitz in 1952, the portfolio optimization problem is a never-ending research topic for both academics and practitioners. In this problem the future prediction of time series evolution plays an important role. However, it is rarely addressed in research. In the paper we analyze the applicability of the GARCH-copula model. To be more concrete we assume the investor maximizing Sharpe ratio while the future evolution of the time series is simulated by means of the AR(1)-GARCH(1,1) model using the copula modelling approach. The bootstrapping technique is applied as a benchmark. From the empirical results we found out that the GARCH-copula model provides better forecasts of future financial time series evolution than the bootstrapping method. Assuming the investor is maximizing the Sharpe ratio, both the final wealth increases and maximum drawdown decreases when we apply the GARCH-copula model compared to the application of b

Czech name

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Czech description

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Type

J_x - Unclassified - Peer-reviewed scientific article (Jimp, Jsc and Jost)

CEP classification

AE - Management, administration and clerical work

OECD FORD branch

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Project

Result was created during the realization of more than one project. More information in the Projects tab.

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2015

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

Financial Assets and Investing

ISSN

1804-5081

e-ISSN

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Volume of the periodical

6

Issue of the periodical within the volume

2

Country of publishing house

CZ - CZECH REPUBLIC

Number of pages

14

Pages from-to

7-20

UT code for WoS article

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EID of the result in the Scopus database

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