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Portfolio Management Using Robust Optimization

Portfolio Optimization is the way of selecting various types of assets such as shares, bonds etc. in some proportions such as to make the portfolio better according to some conditions

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Ruchir Golecha
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85 views42 pages

Portfolio Management Using Robust Optimization

Portfolio Optimization is the way of selecting various types of assets such as shares, bonds etc. in some proportions such as to make the portfolio better according to some conditions

Uploaded by

Ruchir Golecha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BASIC ROBUST PORTFOLIO

OPTIMIZATION MODELS
Guide: Prof. Dr. Raghu Nandan Sengupta
Co-Guide: Prof. Dr. Joydeep Dutta
Submitted by: Abhishek Dhandharia (Y9026)
Ruchir Golecha (Y9452)

Introduction

Introduction
Portfolio Optimization is the way of selecting various types

of assets such as shares, bonds etc. in some proportions


such as to make the portfolio better according to some
conditions
Conditions will basically combine, directly or indirectly,
considerations of the expected value of the portfolios rate
of return as well as the returns dispersion

Robust Counterpart

Model II: Mean Absolute Deviation Model

Robust Counterpart

Model III: Minimax Model

Robust Counterpart

Model IV: C-Var Model

Robust Counterpart

Model V

Robust Counterpart

Model VI

Robust Counterpart

Data Description and Preprocessing


Daily closing prices of companies composing 3 different

stock exchanges indices


Dow Jones Industrial Average (U.S.)
Hang Seng (Hong Kong)
NIFTY 50 (India)

Considered stock values for 2 years period i.e. Feb 1,

2012 to Jan 31, 2014 for stocks of NIFTY and Dow Jones
and for 1 year period of Feb 1, 2012 to Jan 31, 2013 for
stocks of Hang Seng
To overcome the missing data problem we averaged out
the subsequent and preceding price value to obtain the
missing data information

Data Description and Preprocessing

Results and Discussion


Simulations done on Minimax and C-VaR Models
Compared the weight distribution and risk return

graph for deterministic and robust counterpart for


three different levels of probabilities

Minimax Model Dow Jones 2012 Weights Distribution Comparison

Minimax Model Dow Jones 2012 Risk-Return Comparison

Minimax Model NIFTY 2012 Weights Distribution Comparison

Minimax Model NIFTY 2012 Risk Return Comparison

Minimax Model Hang Seng 2012 Weights Distribution Comparison

Minimax Model Hang Seng 2012 Risk Return Comparison

Minimax Model Dow Jones 2013 Weights Distribution Comparison

Minimax Model- Dow Jones 2013 Risk Return Comparision

Minimax Model NIFTY 2013 Weights Distribution Comparison

Minimax Model NIFTY 2013 Risk Return Comparison

C-VaR Model Dow Jones 2012 Weights Distribution

C-VaR Model Dow Jones 2012 Risk Return Comparison

C-VaR Model NIFTY 2012 Weights Distribution

C-VaR Model NIFTY 2012 Risk Return Comparison

C-VaR Model Hang Seng 2012 Weights Distribution

C-VaR Model Hang Seng 2012 Risk Return Comparison

C-VaR Model Dow Jones 2013 Weights Distribution

C-VaR Model Dow Jones 2013 Risk Return Comparison

C-VaR Model NIFTY 2013 Weights Distribution

C-VaR Model NIFTY 2013 Risk Return Comparison

Inference

Bibilography
[1] Ida, M. (2001): Mean-variance portfolio optimization model with uncertain coefficients,

Fuzzy Systems, 2001, The 10th IEEE International Conference, 3, 1223-1226


[2] Shiwei Li (2010): A Portfolio Optimization Model on Condition That Short Selling Is Not
Permitted, Management and Service Science (MASS), International Conference, 1,3, 24-26
[3] Baumann, P., Trautmann, N. (2013): Portfolio-optimization models for small investors,
Mathematical Methods of Operations Research, 77, 3, 345-356
[4] Ben-Tal A., El Ghaoui, L. and Nemirovski, A. (2009): Robust Optimization, Princeton Series in
Applied Mathematics, Princeton University Press
[5] Markowitz, Harry (1952): Portfolio selection, The journal of finance 7.1, 77-91
[6] Seth, R., Sengupta, R.N. (2008): Reliability in Portfolio Optimization Using Uncertain
Estimates, Unpublished thesis submitted at IIT Kanpur
[7] Kumar, R., Sengupta R.N. (2011): Robust Portfolio Optimization of Chance Constrained
Problems Using Exteme Value Distribution, Unpublished thesis submitted at IIT Kanpur
[8] References for data
http://finance.yahoo.com
https://www.leinenbock.com/
http://code.google.com/p/finance-data-to-excel/
http://www.stockhistoricaldata.com

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