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http://dx.doi.org/10.7465/jkdi.2015.26.2.323

Optimal portfolio and VaR of KOSPI200 using One-factor model  

Ko, Kwang Yee (Department of Statistics, Chonnam National University)
Son, Young Sook (Department of Statistics, Chonnam National University)
Publication Information
Journal of the Korean Data and Information Science Society / v.26, no.2, 2015 , pp. 323-334 More about this Journal
Abstract
he current VaR model based on the J.P. Morgan's RiskMetrics structurally can not reflect the future economic situation. In this study, we propose a One-factor model resulting from the Wiener stochastic process decomposed into a systematic risk factor and an idiosyncratic risk factor. Therefore, we are able to perform a preemptive risk management by means of reflecting the predicted common risk factors in the model. Stocks in the portfolio are satisfied with the independence to each other because the common factors are fixed by the predicted value. Therefore, we can easily determine the investment in each stock to minimize the variance of the portfolio. In addition, the portfolio VaR is decomposed into the sum of the individual VaR. So we can effectively implement the constitution of the portfolio to meet the target maximum losses.
Keywords
EWMA; One-factor model; portfolio VaR; stochastic differential equation; systematic risk factor; Wiener stochastic process;
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Times Cited By KSCI : 3  (Citation Analysis)
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