In order to evaluate and manage portfolio risk, we separated this project into three sections. In the first section we constructed a portfolio with 15 different stocks and six options with different strategies. The portfolio was implemented in Interactive Brokers and rebalanced weekly through five holding periods. In the second section we modeled the loss distribution of the whole portfolio with normal and student-t distributions, we computed the Value-at-Risk and expected shortfall in detail for the portfolio loss in each holding week, and then we evaluated differences between the normal and student-t distributions. In the third section we applied the ARMA(1,1)-GARCH(1,1) model to simulate our assets and compared the polynomial tails with Gaussian and t-distribution innovations.
Worcester Polytechnic Institute
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Shen, Chen, "Risk Management Project" (2012). Masters Theses (All Theses, All Years). 650.
ARMA-GARCH, Chi-square test, Expected Shortfall, Value-at-Risk, Risk Management, AIC, Portfolio Optimization, BIC