Rahim, Iylia Lyiana and Mohd Jamil, Siti Ayuni and Mohd Aziz, Nur Anis (2019) Risk minimization for a portfolio using mean absolute deviation and conditional valueatrisk / Iylia Lyiana Rahim, Siti Ayuni Mohd Jamil and Nur Anis Mohd Aziz. [Student Project] (Unpublished)
Abstract
This research focused on minimizing the risk of portfolios using mean¬ Mean Absolute Deviation (meanMAD) and meanConditional Valueat¬ Risk (meanCVaR) as meanrisk models. Since MAD and CVaR comes from different types of risk measure, they have different computational methods and hold onto different purposes. Hence, the question arises whether these two models can dominate either of them and which risk measure is efficient at minimizing risk. The first objective of this re¬ search is to minimize the risk of a portfolio using MAD and CVaR as risk measures. Then, this research wants to verify whether meanMAD dominates meanCVaR or vice versa and lastly, to compare which of the meanrisk model is more favourable based on the insample performance and outsample realized performance. Scenario returns are simulated us¬ ing the monthly returns of the 23 risky assets from FTSE Kuala Lumpur Composite Index (FBMKLCI) to construct the insample portfolios. The insample portfolios are then computed into the two (2) selected models to obtain the portfolio weights. From the insample analysis, we can see that MAD for CVaRminimizing portfolios is not the lower MAD, and CVaR for MADminimizing portfolios is not the minimum CVaR. Hence, both meanrisk models does not dominates each other. Then, the insample portfolio performances are validated through outofsample analysis, using all 119 scenario returns in each outofsample portfolio. At the end of the result, MADminimizing portfolios give more favourable outcomes than CVaR since MAD gives higher expected realized returns than CVaR, and the CVaR for meanMAD does not show much different from the optimal¬ CVaR. Thus, for the next research, it is recommended to use larger data sets obtained from various index using other available meanrisk models.
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Item Type:  Student Project  

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Subjects:  Q Science > QA Mathematics > Mathematical statistics. Probabilities Q Science > QA Mathematics > Analysis > Analytical methods used in the solution of physical problems 

Divisions:  Universiti Teknologi MARA, Negeri Sembilan > Seremban Campus > Faculty of Computer and Mathematical Sciences  
Programme:  Bachelor of Science (Hons.) Management Mathematics  
Item ID:  39214  
Uncontrolled Keywords:  Risk minimization, portfolio, mean absolute deviation, conditional valueatrisk  
URI:  http://ir.uitm.edu.my/id/eprint/39214 
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