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Dynamic optimization of an investment portfolio on European stock markets using pair copulas

Author

Listed:
  • Atskanov, Isuf

    (Aton Asset Management, Moscow, Russian Federation)

Abstract

This paper proposes a procedure for dynamic optimization of an investment portfolio, consisting of stock market indices. SJC-copulas were used to assets statistical characteristics of assets. Copulas allow to measure interdependence between financial instruments, and to build an efficient investment portfolio. Since statistical characteristics of assets are changing with time, the structure of the portfolio is upgrading accordingly. The portfolio is then compared with two benchmarks in terms of return and risk. As a result the proposed procedure provides better performance. Also, the paper studies building a portfolio with short positions

Suggested Citation

  • Atskanov, Isuf, 2015. "Dynamic optimization of an investment portfolio on European stock markets using pair copulas," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 40(4), pages 84-105.
    • Handle: RePEc:ris:apltrx:0279
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    References listed on IDEAS

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    More about this item

    Keywords

    SJC-copulas; dynamic portfolio optimization; asset returns interdependence; Monte-Carlo simulation; CVaR;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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