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More About This Title Financial Risk Modelling and PortfolioOptimization with R
English
Introduces the latest techniques advocated for measuring financial market risk and portfolio optimization, and provides a plethora of R code examples that enable the reader to replicate the results featured throughout the book.
Financial Risk Modelling and Portfolio Optimization with R:
Demonstrates techniques in modelling financial risks and applying portfolio optimization techniques as well as recent advances in the field.Introduces stylized facts, loss function and risk measures, conditional and unconditional modelling of risk; extreme value theory, generalized hyperbolic distribution, volatility modelling and concepts for capturing dependencies.Explores portfolio risk concepts and optimization with risk constraints.Enables the reader to replicate the results in the book using R code.Is accompanied by a supporting website featuring examples and case studies in R.Graduate and postgraduate students in finance, economics, risk management as well as practitioners in finance and portfolio optimization will find this book beneficial. It also serves well as an accompanying text in computer-lab classes and is therefore suitable for self-study.
English
Preface xi
List of abbreviations xiii
Part I MOTIVATION 1
1 Introduction 3
2 A brief course in R 6
2.1 Origin and development 6
2.2 Getting help 7
2.3 Working with R 10
2.4 Classes, methods and functions 12
2.5 The accompanying package FRAPO 20
3 Financial market data 26
3.1 Stylized facts on financial market returns 26
3.2 Implications for risk models 32
4 Measuring risks 34
4.1 Introduction 34
4.2 Synopsis of risk measures 34
4.3 Portfolio risk concepts 39
5 Modern portfolio theory 43
5.1 Introduction 43
5.2 Markowitz portfolios 43
5.3 Empirical mean–variance portfolios 47
Part II RISK MODELLING 51
6 Suitable distributions for returns 53
6.1 Preliminaries 53
6.2 The generalized hyperbolic distribution 53
6.3 The generalized lambda distribution 56
6.4 Synopsis of R packages for the GHD 62
6.5 Synopsis of R packages for GLD 67
6.6 Applications of the GHD to risk modelling 69
6.7 Applications of the GLD to risk modelling and data analysis 78
7 Extreme value theory 84
7.1 Preliminaries 84
7.2 Extreme value methods and models 85
7.3 Synopsis of R packages 89
7.4 Empirical applications of EVT 98
8 Modelling volatility 112
8.1 Preliminaries 112
8.2 The class of ARCH models 112
8.3 Synopsis of R packages 116
8.4 Empirical application of volatility models 123
9 Modelling dependence 127
9.1 Overview 127
9.2 Correlation, dependence and distributions 127
9.3 Copulae 130
9.4 Synopsis of R packages 136
9.5 Empirical applications of copulae 142
Part III PORTFOLIO OPTIMIZATION APPROACHES 153
10 Robust portfolio optimization 155
10.1 Overview 155
10.2 Robust statistics 156
10.3 Robust optimization 160
10.4 Synopsis of R packages 166
10.5 Empirical applications 171
11 Diversification reconsidered 189
11.1 Introduction 189
11.2 Most diversified portfolio 190
11.3 Risk contribution constrained portfolios 192
11.4 Optimal tail-dependent portfolios 195
11.5 Synopsis of R packages 197
11.6 Empirical applications 201
12 Risk-optimal portfolios 217
12.1 Overview 217
12.2 Mean–VaR portfolios 218
12.3 Optimal CVaR portfolios 223
12.4 Optimal draw-down portfolios 227
12.5 Synopsis of R packages 229
12.6 Empirical applications 238
13 Tactical asset allocation 255
13.1 Overview 255
13.2 Survey of selected time series models 256
13.3 Black–Litterman approach 270
13.4 Copula opinion and entropy pooling 273
13.5 Synopsis of R packages 276
13.6 Empirical applications 288
Appendix A Package overview 314
A.1 Packages in alphabetical order 314
A.2 Packages ordered by topic 317
Appendix B Time series data 324
B.1 Date-time classes 324
B.2 The ts class in the base package stats 327
B.3 Irregular-spaced time series 328
B.4 The package timeSeries 330
B.5 The package zoo 332
B.6 The packages tframe and xts 334
Appendix C Back-testing and reporting of portfolio strategies 338
C.1 R packages for back-testing 338
C.2 R facilities for reporting 339
C.3 Interfacing databases 339
Appendix D Technicalities 342
Index 343
