*Tid:* **8 oktober 2012 kl 15.15-16.00.**
**Seminarierummet 3721**, Institutionen för
matematik, KTH, Lindstedts väg 25, plan 7.
Karta!
*Föredragshållare:*
**
Pär Lorentz
**
**Titel:**
A Modified Sharpe Ratio Based Portfolio Optimization
(Examensarbete - Master thesis)
**Abstract**
The performance of an optimal-weighted portfolio strategy is evaluated when transaction
costs are penalized compared to an equal-weighted portfolio strategy. The
optimal allocation weights are found by maximizing a modified Sharpe ratio measure
each trading day, where modified refers to the expected return of an asset in this
context. The leverage of the investment is determined by a conditional expectation
estimate of the number of portfolio assets of the next-coming day. A moving window
is used to historically measure the transition probabilities of moving from one state
to another within this stochastic count process and this is used as an input to the
estimator. It is found that the most accurate estimate is the actual trading day's
number of portfolio assets and this is obtained when the size of the moving window
is one. Increasing the penalty parameter on transaction costs of selling and buying
assets between trading days lowers the aggregated transaction cost and increases
the performance of the optimal-weighted portfolio considerably. The best portfolio
performance is obtained when at least 50% of the capital is invested equally among
the assets when maximizing the modified Sharpe ratio. The optimal-weighted and
equal-weighted portfolios are constructed on a daily basis, where the allowed VaR at the level 5%
is 300 000 euro for each portfolio. This sets the limit on the amount of capital allowed
to be invested each trading day, and is determined by empirical VaR simulations
of these two portfolios.
The full report (pdf)
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