Application of Volatility in Portfolio Construction - Journal of Applied Mathematics and Physics

JAMP > Vol.3 No.7, July 2015

Application of Volatility in Portfolio Construction ()

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Download as PDF (Size: 434KB) PP. 808-813

DOI: 10.4236/jamp.2015.37099 3,353 Downloads 4,324 Views Citations

Author(s)

Michael Ha¹, George Z. Liu², Lihui Zheng³

Affiliation(s)

¹Department of Mathematical Sciences, Xi’an Jiaotong-Liverpool University, Suzhou, China.
²Head of Risk Strategy & Derivatives, Asia Pacific, Allianz Global Investors, Hong Kong, China.
³Head of Risk Management Department, Huatai-Pinebridge Fund Management Co. Ltd, Shanghai, China.

ABSTRACT

We studied the CBOE Market Volatility Index from 1995 to 2004 and the Cross-Sectional Volatility of MSCI US and MSCI AC Asia ex Japan of the same period. Tracking Error calculations and Market Volatility Analyses were performed. We selected a portfolio, Dragon, for Risk Analysis, Risk Decomposition and Risk Characteristics identification purposes. A conclusion relating Dragon’s Tracking Error and its Portfolio Size was drawn.

KEYWORDS

Volatility, VIX, Tracking Error, Active Risk, Risk Decomposition, Risk Characteristics

Share and Cite:

Ha, M. , Liu, G. and Zheng, L. (2015) Application of Volatility in Portfolio Construction. Journal of Applied Mathematics and Physics, 3, 808-813. doi: 10.4236/jamp.2015.37099.

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