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Intra-Daily FX Optimal Portfolio Allocation

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  • Luc, BAUWENS

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

  • Walid, BEN OMRANE

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

  • Erick, Rengifo

Abstract

We design and implement optimal foreign exchange portfolio allocations. An optimal allocation maximizes the expected return subject 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 recommendations in terms of the optimal weights of the currencies in the risk portfolio.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2006005.

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Length: 28
Date of creation: 01 Feb 2006
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Handle: RePEc:ctl:louvec:2006005

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Keywords: Optimal portfolio selection; Value-at-risk; GARCH models; Foreign exchange markets;

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References

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  3. RENGIFO, Erick & ROMBOUTS, Jeroen, 2004. "Dynamic optimal portfolio selection in a VaR framework," CORE Discussion Papers 2004057, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  13. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
  14. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  15. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June.
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