dc.contributor.author | Agatonovic, Marko | |
dc.date.accessioned | 2010-08-31 16:46:28 (GMT) | |
dc.date.available | 2010-08-31 16:46:28 (GMT) | |
dc.date.issued | 2010-08-31T16:46:28Z | |
dc.date.submitted | 2010-08-24 | |
dc.identifier.uri | http://hdl.handle.net/10012/5427 | |
dc.description.abstract | This thesis documents a heavy-tailed analysis of stable portfolios. Stock market crashes occur more often than is predicted by a normal distribution,which provides empirical evidence that asset returns are heavy-tailed. The motivation of this thesis is to study the effects of heavy-tailed distributions of asset returns. It is imperative to know the risk that is incurred for unlikely tail events in order to develop a safer and more accurate portfolio. The heavy-tailed distribution that is used to model asset returns is the stable distribution. The problem of optimally allocating assets between normal and stable distribution portfolios is studied. Furthermore, a heavy-tail sensitivity analysis is performed in order to see how the optimal allocation changes as the heavy-tail coefficient is altered. In order to solve both problems, we use a mean-dispersion risk measure and a probability of loss risk measure. Our analysis is done for two-asset stable portfolios, one of the assets being risk-free, and one risky. The approach used involves changing the heavy-tail parameter of the stable distribution and finding the differences in the optimal asset allocation. The key result is that relatively more wealth is allocated to the risk-free asset when using stable distributions than when using normal distributions. The exception occurs when using a loss probability risk measure with a very high risk tolerance. We conclude that portfolios assuming normal distributions incorrectly calculate the risk in two types of situations. These portfolios do not account for the heavy-tail risk when the risk tolerance is low and they do not account for the higher peak around the mean when the risk tolerance is high. | en |
dc.language.iso | en | en |
dc.publisher | University of Waterloo | en |
dc.subject | Stable Portfolios | en |
dc.subject | Portfolio Optimization | en |
dc.title | Heavy-tail Sensitivity of Stable Portfolios | en |
dc.type | Master Thesis | en |
dc.pending | false | en |
dc.subject.program | Electrical and Computer Engineering | en |
uws-etd.degree.department | Electrical and Computer Engineering | en |
uws-etd.degree | Master of Applied Science | en |
uws.typeOfResource | Text | en |
uws.peerReviewStatus | Unreviewed | en |
uws.scholarLevel | Graduate | en |