Application of Dynamic Copula-GARCH models in Portfolio Allocation

• Main Authors: Yi-Huei Lu, 盧羿卉
• Other Authors: Chou-Wen Wang
• Format: Others
• Language: en_US
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/98318501797560494183

碩士 === 國立高雄第一科技大學 === 風險管理與保險研究所 === 101 === In this paper, we evaluate the use of optimization frameworks to allocate financial assets. Comparing time-varying copula–GARCH models with the Hansen''s skew t distribution (STD), the skewed generalized t distribution (SGT) and the generalized hyperbolic (GH) distribution by Bayesian Information Criterion (BIC), daily data of MSCI Europe Index (EUR), Dow Jones Industry (DJ), S&P500 Gold Index (Gold), MSCI World Energy Index (ENG), MSCI Emerging Markets Index (EM) support using the Dynamic Conditional Correlation (DCC) copula with Student''s t distribution as best model to capture the characteristic of assets during January 2, 1995 through December 31, 2012. The equal-weighted portfolio (1/n), the minimum-variance portfolio (MV), the equally-weighted risk contributions portfolio (ERC), the maximum Sharpe ratio portfolio (MSR) and the maximum CRRA utility portfolio (CRRA) are used to estimate the optimal weights applying in out-sample. Our results provide that the best strategies is the CRRA portfolio which consider about risk appetite of investor as well as has maximum return in both entire period and financial crisis (from June 2008 to March 2009).