Intra-Daily FX Optimal Portfolio Allocation

CORE Discussion Paper No. 2006/10

28 Pages Posted: 10 Jul 2006

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Walid Ben Omrane

Brock University - Department of Finance, Operations and Information Systems (FOIS)

Erick W. Rengifo

Fordham University - Department of Economics - Center for International Policy Studies (CIPS)

Date Written: February 2006

Abstract

We design and implement optimal foreign exchange portfolio allocations. An optimal allocation maximizes the expected return subject to a Value-at-Risk (VaR) constraint. Based on intradaily data, the optimization procedure is carried out at regular time intervals. For the estimation of the conditional variance from which the VaR is computed, we use univariate and multivariate GARCH models. The result for each model is given by the best intradaily investment recommendations in terms of the optimal weights of the currencies in the risky portfolio.

Keywords: Optimal portfolio selection, Value-at-Risk, GARCH models, Foreign exchange markets

JEL Classification: C32, C53, G11

Suggested Citation

Bauwens, Luc and Ben Omrane, Walid and Rengifo, Erick W., Intra-Daily FX Optimal Portfolio Allocation (February 2006). Available at SSRN: https://ssrn.com/abstract=912697 or http://dx.doi.org/10.2139/ssrn.912697

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Walid Ben Omrane

Brock University - Department of Finance, Operations and Information Systems (FOIS) ( email )

Ontario, L2S 3A1
Canada

Erick W. Rengifo

Fordham University - Department of Economics - Center for International Policy Studies (CIPS) ( email )

United States
0017188174061 (Phone)
0017188173518 (Fax)

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