Portfolio Optimization of Commodity Futures with Seasonal Components and Higher Moments

18 Pages Posted: 17 Nov 2016

See all articles by Thomas Bjerring

Thomas Bjerring

Technical University of Denmark - Management Engineering

Kourosh Marjani Rasmussen

Technical University of Denmark

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: November 15, 2016

Abstract

We investigate the diversification benefits of combining commodities with a traditional equity portfolio, while considering higher order statistical moments and seasonality. The literature suggests that the in-sample diversification benefits of commodities in portfolio optimization are not preserved out-of-sample. We provide an extensive in-sample and out-of-sample analysis with ten commodities and a stock index using the classical tangency mean-variance model and the maximum Omega ratio model. We show that seasonality in commodity returns should be considered, and leads to significant excess return and increase in Sharpe ratio.

Keywords: Commodity Futures, Sieve Bootstrapping, Omega Ratio, Portfolio Optimization, Stochastic Programming

Suggested Citation

Bjerring, Thomas and Rasmussen, Kourosh Marjani and Weissensteiner, Alex, Portfolio Optimization of Commodity Futures with Seasonal Components and Higher Moments (November 15, 2016). Available at SSRN: https://ssrn.com/abstract=2869969 or http://dx.doi.org/10.2139/ssrn.2869969

Thomas Bjerring (Contact Author)

Technical University of Denmark - Management Engineering ( email )

Produktionstorvet 424
room 043
Kgs. Lyngby, 2800
Denmark

Kourosh Marjani Rasmussen

Technical University of Denmark ( email )

Anker Engelunds Vej 1
Building 101A
Lyngby, 2800
Denmark

Alex Weissensteiner

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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