Portfolio Optimisation Using Value at Risk

Optimal portfolios are normally computed using the portfolio risk measured in terms of its variance. However, performance risk is a problem if the portfolio does not perform well. This project involves using linear programming techniques to define and handle the “Value- At-Risk” risk metric.

By evaluating historical prices to create future scenarios one can determine the “Value-At- Risk” of a specified portfolio. Using linear programming software to develop a returns model for the FTSE 100 one can, hence, calculate which stocks should be bought or sold in order to minimise the “Value-At-Risk” of a portfolio with an underlying required returns constraint. The developed tool will look at multi-period scenarios and seek to optimise the portfolio accordingly.

This report documents the analysis of current ways of measuring single period “Value-At- Risk” and the formulation of a unique method of calculating multi-period “Value-At-Risk”. It goes on to describe an application which implements this model and highlights the results of exhaustive testing of the application.

Imperial College London
Length of Resource
Vinay Kaura
Date Published
Publication Type
Resource Type

ResourceID: 69788

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