Portfolio Selection under Time-Varying Volatility Risk with Taiwan Equity Market
碩士 === 國立臺灣大學 === 工業工程學研究所 === 96 === This thesis is aimed to construct a comprehensive model of portfolio selection under time-varying volatility. The model contains two modules. Module 1 consists of three simplified multivariate GARCH models namely Constant Correlation GARCH model, Orthogonal GARC...
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| Format: | Others |
| Language: | en_US |
| Published: |
2008
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| Online Access: | http://ndltd.ncl.edu.tw/handle/91413478513590976696 |
| Summary: | 碩士 === 國立臺灣大學 === 工業工程學研究所 === 96 === This thesis is aimed to construct a comprehensive model of portfolio selection under time-varying volatility. The model contains two modules. Module 1 consists of three simplified multivariate GARCH models namely Constant Correlation GARCH model, Orthogonal GARCH model and PC GARCH model respectively. Module 2 consists of a mean-variance model and a mean-VaR model. Module 1 is used to generate three different time-varying covariance matrices. Any of these matrices can be substituted into Module 2 to obtain a time-varying portfolio that minimizes the risk reflected by its volatility. It is shown that a closed-form solution exists for the optimal portfolio weights if the mean-variance model is employed. However, the optimal portfolio weight may not exist for the mean-VaR model if a small confidence level is selected. The above proposed portfolio selection model is used to analyze a few common stocks selected from Taiwan equity market. The optimal portfolio obtained from the mean-variance model is compared with benchmarks of the market such as TWEX market-value weighted portfolio, MSCI weighted portfolio and TWEX. It is found that the optimal portfolio obtained using the proposed model has the least volatility as compared to those of TWEX weighted portfolio and MSCI weighted portfolio regardless of which of the three multivariate GARCH models is used.
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