Optimising a Mining Portfolio Using CVaR

12 Pages Posted: 3 Dec 2011

See all articles by David E. Allen

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Akhmad Kramadibrata

Edith Cowan University - School of Accounting, Finance and Economics

Robert J. Powell

Edith Cowan University - School of Accounting, Finance and Economics; Financial Research Network (FIRN)

Abhay Kumar Singh

Edith Cowan University

Date Written: December 1, 2011

Abstract

The mining industry can be extremely volatile during times of economic downturn. We compare extreme risk in mining share portfolios from each of the world’s seven leading mining areas using Conditional Value at Risk (CVaR) which measures those risks beyond traditional Value at Risk (VaR) metrics. We also show how CVaR can be used to optimise portfolios and minimise extreme risk. We find significant differences between countries in CVaR as compared to standard deviation risk rankings, as well as differences in portfolios optimised using CVaR compared to portfolios using traditional variance methodology. This indicates that investors will not adequately minimise risk using traditional approaches.

Keywords: CVaR, Mining Industry, Optimisation

JEL Classification: G01, G21, G28

Suggested Citation

Allen, David Edmund and Kramadibrata, Akhmad and Powell, Robert J. and Singh, Abhay Kumar, Optimising a Mining Portfolio Using CVaR (December 1, 2011). Available at SSRN: https://ssrn.com/abstract=1967312 or http://dx.doi.org/10.2139/ssrn.1967312

David Edmund Allen

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Akhmad Kramadibrata

Edith Cowan University - School of Accounting, Finance and Economics ( email )

270 Joondalup Drive
Joondalup, WA g027
Australia
+61 8 6304 5265 (Phone)

Robert J. Powell (Contact Author)

Edith Cowan University - School of Accounting, Finance and Economics ( email )

Joondalup Campus
Perth
Joondalup 6027, WA
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Abhay Kumar Singh

Edith Cowan University ( email )

Joondalup Drive
Perth
Joondalup, WA 6027
Australia

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