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Intra-daily FX optimal portfolio allocation

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Author Info
BAUWENS, Luc
BEN OMRANE, Walid
RENGIFO, Erick

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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

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Publisher Info
Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006010.

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Date of creation: 01 Feb 2006
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Handle: RePEc:cor:louvco:2006010

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Related research
Keywords: optimal portfolio selection; Value-at-Risk; GARCH models; foreign ex- change markets;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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  3. Bauwens, Luc & Ben Omrane, Walid & Giot, Pierre, 2005. "News announcements, market activity and volatility in the euro/dollar foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1108-1125, November. [Downloadable!] (restricted)
    Other versions:
  4. Hansen, Bruce E, 1994. "Autoregressive Conditional Density Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 705-30, August. [Downloadable!] (restricted)
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  5. Campbell, Rachel & Huisman, Ronald & Koedijk, Kees, 2001. "Optimal portfolio selection in a Value-at-Risk framework," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1789-1804, September. [Downloadable!] (restricted)
  6. Luc Bauwens & Sébastien Laurent, 2002. "A New Class of Multivariate skew Densities, with Application to GARCH Models," Computing in Economics and Finance 2002 5, Society for Computational Economics.
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  7. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February. [Downloadable!]
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  8. Joan Jasiak & R. Sufana & C. Gourieroux, 2005. "The Wishart Autoregressive Process of Multivariate Stochastic Volatility," Working Papers 2005_2, York University, Department of Economics. [Downloadable!]
  9. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
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  11. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
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  13. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  14. Lo, Andrew W. & Craig MacKinlay, A., 1990. "An econometric analysis of nonsynchronous trading," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 181-211. [Downloadable!] (restricted)
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  15. Goodhart, C. A. E. & Figliuoli, L., 1991. "Every minute counts in financial markets," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 23-52, March. [Downloadable!] (restricted)
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  17. Bollerslev, Tim & Domowitz, Ian, 1993. " Trading Patterns and Prices in the Interbank Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 48(4), pages 1421-43, September. [Downloadable!] (restricted)
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