Selected paper

Reuse, Svend
Comparing Variance/Covariance and Historical Simulation in the Context of the Financial Crisis – Do Extreme Movements Have an Influence onto Portfolio Selection?
Year: 2010
Volume: 1
Issue: 1
Pages: 15-30
JEL: G10, G15, G30

PDF

Keywords:
portfolio theory, financial crisis, historical simulation, variance/ covariance approach

Abstract:
Portfolio theory and the basic ideas of Markowitz have been extended in the recent past by alternative risk models as historical simulation or even copula functions. The central question of this paper is if these approaches lead to different results compared to the classical variance/covariance approach. Therefore, empirical data of the last 10 years is analysed. Both approaches are compared in the special context of the financial crisis. The worst case optimization and the Value at Risk (VaR) are defined in order to define the minimum risk portfolio before and after the financial crisis. The result is that the financial crisis has nearly no impact onto the portfolio, but the two approaches lead to different results.

References:

Beck, Andreas & Lesko, Michael (2006), “Copula-Funktion zur Ermittlung des Gesamtbankrisikoprofils“, in: Betriebswirtschaftliche Blätter no. 05/2006, vol. 55, Stuttgart, pp. 289–293. Beck, Andreas & Lesko, Michael & Schlottmann, Frank & Wimmer, Konrad (July 2006), „Copulas im Risikomanagement”, in: Zeitschrift für das gesamte Kreditwesen 14-2006, Frankfurt, pp. 29–33. Bühler, W. & Korn, O. & Schmidt, A. (1998), “Ermittlung von Eigenkapitalanforderungen mit internen Modellen“, in: Die Betriebswirtschaft, No. 58, pp. 65–85. Frère, E. & Reuse, S. & Svoboda, M. (2008), Aktuelle Probleme im deutschen Bankensektor – eine kritische Analyse und mögliche Lösungsansätze, Essen. Goebel, R. & Sievi, C. & Schumacher, M. (1999), Wertorientiertes Management und Performancesteuerung, Stuttgart . Hager, P. (n.Y.), Varianz-Kovarianz-Modell, Risknet paper, Retrieved from: http://www.risknet.de/fileadmin/template_risknet/images_content/Methoden/VaRVerfahren_ RiskNET.pdf, accessed on July 12th, 2010. Lesko, Michael (December 2006), “Copulas im Risikomanagement”, in: Gillardon News 39, Bretten, pp. 3–6. Linnertová, D. & Reuse, S. (October 2008), Using Commodities as a Strategy of Diversification – a Historical Analysis, Vincent Šoltés (eds.) National and Regional Economics VII, Ekonomická fakulta Technickej univerzity v Košiciach, pp. 554–561. Markowitz, H. M. (March 1952), “Portfolio Selection”, in: The Journal of Finance, Vol VII, No. 1, pp. 77–91. Markowitz, H. M. (1987), Mean-Variance Analysis in Portfolio Choice and Capital Markets, Oxford. Mashal, Roy & Zeevi, Assaf (2002), Beyond Correlation: Extreme Co-movements Between Financial Assets, October 14th, 2002, Retrieved from: http://www.faculty.idc.ac.il/roy/Pub/BeyondCorrelation.pdf, accessed on Juli 12th, 2010. Perridon, L. & Steiner, M. (2007), Finanzwirtschaft der Unternehmung, 14th edition, Munich 2007. Reuse, S. (2006), “Berechnung des Value-at-Risk mit der Monte-Carlo-Simulation”, in: Bankpraktiker, vol. 1, July 2006, no. 07-08/2006, Düsseldorf, pp. 366–371. Reuse, S. (2008), “Definition und Ausprägung des Zinsänderungsrisikos”, in: Fröhlich, J. & Geiersbach, K. & Prasser, S. & Rassat, T. & Reuse, S. & Steinwachs, P. (eds.): Zinsrisikomanagement, Heidelberg 2008, pp. 1–16. Rolfes, B. (1999), Gesamtbanksteuerung, Stuttgart. Schierenbeck, H. (2001), Ertragsorientiertes Bankmanagement, Band 2: Risiko-Controlling und integrierte Rendite-/Risikosteuerung, 7th edition, Wiesbaden. Woll, A. (1996), Wirtschaftslexikon, 8th edition, Munich/Wien.

Call for papers

Call for papers is permanently open for articles across all the research areas.

tel.: +420 549 494 683 | e-mail: fai@econ.muni.cz
© Copyright 2010–13 IFT