*Tid:* **7 april 2014 kl 15.15-16.00.**
**Seminarierummet 3721**, Institutionen för
matematik, KTH, Lindstedtsvägen 25, plan 7.
Karta!
*Föredragshållare:*
**
Alex Singh
**
**Titel:**
A risk-transaction cost trade-off model for index tracking
**Abstract**
This master thesis considers and evaluates a few different risk models for
stock portfolios, including an ordinary sample covariance matrix, factor models
and an approach inspired from random matrix theory. The risk models
are evaluated by simulating minimum variance portfolios and employing a
cross-validation. The Bloomberg+ transaction cost model is investigated
and used to optimize portfolios of stocks, with respect to a trade o? between
the active risk of the portfolio and transaction costs. Further a few di?fferent
simulations are performed while using the optimizer to rebalance long-only
portfolios. The optimization problem is solved using an active-set algorithm.
A couple of approaches are shown that may be used to visually try to decide
a value for the risk aversion parameter λ in the objective function of the
optimization problem.
The thesis concludes that there is a practical di?erence between the different
risk models that are evaluated. The ordinary sample covariance matrix
is shown to not perform as well as the other models. It also shows that more
frequent rebalancing is preferable to less frequent. Further the thesis goes on
to show a peculiar behavior of the optimization problem, which is that the
optimizer does not rebalance all the way to 0 in simulations, even if enough
time is provided, unless it is explicitly required by the constraints.
The full report (pdf)
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