Optimal portfolio selection in a value risk financial essay
Portfolio selection is an essential issue in the financial sector. It studies how to allocate one's wealth across a basket of securities to maximize returns and minimize risk. And dynamic portfolio selection based on a benchmark process is one of the most important types. Unlike existing literature, we impose dynamic risk management. Strategic asset allocation leads to the identification of a number of efficient portfolios in terms of risk and return. This common feature brings the topic of portfolio selection to the fore, because it is clear that when we are presented with a variety of long-term investment options, not all of which can be classified as optimal, we face a problem of: Value At Risk - VaR: Value at Risk VaR is a statistical technique used to measure and quantify the level of financial risk within a company or investment portfolio over a specific time frame. This. Value - at-Risk VaR is an integral part of today's financial regulations. Therefore, measuring VaR and designing optimal VaR portfolios are very relevant problems for financial institutions. This article addresses a Markowitz-style portfolio selection problem with VaR constraints where the distribution of the portfolio's returns is determined. We study a financial model with one risk-free and one risky asset that is subject to liquidity risk and price effects. This market allows an investor to transfer money between the two assets at any time. Each purchase or sale policy decision affects the return on the risky asset and incurs some fixed transaction costs. The goal is to maximize the. The effects of financial capital and human capital on the optimal life insurance premium are also different. This fact is highlighted in Kwak et al. 2011 and a similar result is achieved even in the presence of inflation risk. More specifically, as we can see in Figure 1, financial capital has a negative effect: the more financial capital, the less. Abstract. The traditional portfolio selection problem involves an agent whose goal is to maximize the expected utility of terminal wealth over some horizon. This basic problem can be modified by adding constraints. In this article, we explore the portfolio selection problem for an investor looking to outperform a given benchmark. Investors want the ability to assess the true and complete risk of the financial assets in a portfolio. Yet current analytical methods provide only partial measures of risk. I propose that by viewing a securities portfolio as a cooperative game played by the assets and minimizing portfolio risk, investors can calculate the exact Value-at-Risk VaR that is an integral part of today's financial regulations. Therefore, measuring VaR and designing optimal VaR portfolios are very relevant problems for financial institutions. This article addresses a Markowitz-style portfolio selection problem where the distribution of VaR returns is constrained. Of course, a higher VaR can be obtained by borrowing money at the risk-free rate, which leads to more money being invested in the risky portfolio of stocks and bonds. that is, moving to the right along the capital market line. Portfolio optimization refers to the selection of optimal ones.