Document Type masters report Author Name Shen, Chen URN etd-050212-113640 Title Risk Management Project Degree MS Department Mathematical Sciences Advisors Blais, Marcel Y., Advisor Keywords ARMA-GARCH Chi-square test Expected Shortfall Value-at-Risk Risk Management AIC Portfolio Optimization BIC Date of Presentation/Defense 2012-04-30 Availability unrestricted
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.
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