Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/192045
Title: PORTFOLIO OPTIMISATION USING RISK CLUSTERING AND CORNISH-FISHER VALUE-AT-RISK: AN APPLICATION TO SINGAPORE STOCKS
Authors: KHIEW ZHI KAI
Keywords: portfolio optimisation
clustering
Cornish-Fisher Value-at-Risk
Singapore stocks
Issue Date: 5-Apr-2021
Citation: KHIEW ZHI KAI (2021-04-05). PORTFOLIO OPTIMISATION USING RISK CLUSTERING AND CORNISH-FISHER VALUE-AT-RISK: AN APPLICATION TO SINGAPORE STOCKS. ScholarBank@NUS Repository.
Abstract: The classical mean-variance portfolio strategy is often criticized for penalising positive deviations in returns when investors mainly care about downside risk. Moreover, it fails to account for the skewness and kurtosis of portfolio returns. Portfolio optimisation using the Cornish-Fisher Value-at-Risk (CF-VaR) addresses these weaknesses by choosing the asset weights to induce positive skewness while reducing kurtosis so as to minimise the adverse tail risk of the portfolio. However, CF-VaR optimisation can be computationally intractable for large number of assets. By clustering stocks based on their risk profile into a handful of groups and selecting one asset from each group, the number of assets is reduced thus making the CF-VaR optimisation strategy computationally feasible. When applied to the Singapore stock market, the combined strategy of clustering and CF-VaR optimisation produces strong synergies that appears to beat classical portfolio strategies and the popular passive strategy of investing in the Straits Times Index.
URI: https://scholarbank.nus.edu.sg/handle/10635/192045
Appears in Collections:Bachelor's Theses

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