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Intra-daily FX optimal portfolio allocation

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  • BAUWENS, Luc
  • BEN OMRANE, Walid
  • RENGIFO, Erick

Abstract

We design and implement optimal foreign exchange portfolio allocations. An optimal allocation maximizes the expected return sub ject to a Value-at-Risk (VaR) constraint. Based on intradaily data, the optimization procedure is carried out at regular time intervals. For the estimation of the conditional variance from which the VaR is computed, we use univariate and multivariate GARCH models. The result for each model is given by the best intradaily investment recom- mendations in terms of the optimal weights of the currencies in the risky portfolio

Suggested Citation

  • BAUWENS, Luc & BEN OMRANE, Walid & RENGIFO, Erick, 2006. "Intra-daily FX optimal portfolio allocation," LIDAM Discussion Papers CORE 2006010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2006010
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    Cited by:

    1. BONGA-BONGA, Lumengo & NLEYA, Lebogang, 2018. "Assessing Portfolio Market Risk in the BRICS Economies: Use of Multivariate GARCH Models," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 71(2), pages 87-128.
    2. Manuela Braione & Nicolas K. Scholtes, 2016. "Forecasting Value-at-Risk under Different Distributional Assumptions," Econometrics, MDPI, vol. 4(1), pages 1-27, January.
    3. Braione, Manuela & Scholtes, Nicolas K., 2014. "Construction of value-at-risk forecasts under different distributional assumptions within a BEKK framework," LIDAM Discussion Papers CORE 2014059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    optimal portfolio selection; Value-at-Risk; GARCH models; foreign ex- change markets;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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