Innovative Multicurrency Portfolio Optimization Using Copula-Based Scenarios

Authors

  • Rungnapa Opartpunyasarn Faculty of Economics, Thammasat University, Thailand

Keywords:

International portfolio, Currency overlay, Regular-vine copula

Abstract

Optimizing a multicurrency portfolio requires a flexible model to manage exchange rate risk as well as representational data on asset-currency dependency. Additionally, deliberate scenario generation is also vital for portfolio risk evaluation, especially for the case of extreme events. This study proposes a mean-CVaR portfolio optimization model with currency overlay under regular-vine copula generated scenarios. To highlight the importance of the scenario generation technique, the performance of the resulting portfolios from the proposed method are compared with those optimized under multivariate normal assumption. The results show that portfolios from our proposed approach outperform those from the traditional method, both in return and risk metrics. This outperformance is largely attributed to active currency hedging, which takes advantage of detailed information captured by a regular-vine copula.

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Published

2024-11-24

How to Cite

Opartpunyasarn, R. (2024). Innovative Multicurrency Portfolio Optimization Using Copula-Based Scenarios. Thammasat Review, 27(2), 32–51. retrieved from https://sc01.tci-thaijo.org/index.php/tureview/article/view/240840