The impact on banks' portfolio under BIS amendment to the capital accord of 1996 and reserve requirement.

The Dynamic Conditional Correlation (DCC) model proposed by Engle (2002) has become one of the most popular models for the analysis of multivariate financial time series. Yet, the impact of temporal aggregation on the DCC estimates has not yet been rigorously investigated. This thesis examines the changes of DCC estimates when the intraday returns are aggregated from 5-minutes to 270-minutes returns using Taiwanese eight industry index returns from Jan. 2, 2004 to Dec. 31, 2006. Our empirical analysis finds that dynamic correlation coefficients between the 8 industry index returns are all positive and time-varying. Further, Electronic and Building indices seem to have high correlation with other industry indices whereas plastics has a lower correlation with others. What is more important, all return series have higher conditional correlation for lower frequencies. In other words, temporary aggregation will increase the conditional correlation. This thesis also seeks to categorize the loan accounts of small- and medium-scale corporations according to their respective business sectors and calculate the monthly returns and standard deviation of the bank loans according to the groups of sample of credit records from each sector, with the purpose of establishing the efficient frontier of the loan combinations of the banks and estimation the dynamic conditional correlation to discover the optimal crediting policy. It is expected that the discussion using the model presented in the thesis may provide the basis for financial institutions as they establish their respective crediting policies.

The UK has a commitment to reduce greenhouse gases by at least 80% from 1990 levels by 2050. This will see the proportion of energy generated in the UK from renewable resources such as wind, solar, marine and bio-fuels is increasing and likely to dominate the future energy market over the next few decades. However, it is unclear what effect future physical climate changes could have on the long term average energy output characteristics of individual renewable energy technologies that may dominate the low carbon energy technologies. It is also unclear how these changes to individual technologies will affect a diverse portfolio of electricity generation technologies. This thesis explores the influence of climate change on renewable electricity generation portfolios and energy security in the UK, with the aim of determining if climate change will affect renewable energy resource in such a way that may leave future low carbon generation portfolios sub-optimal. The research allows long term renewable resource variability to be reflected within models of the costs and risks associated with different electricity generation technologies and using Mean Variance Portfolio Theory (MVPT), it explores the influence of climate change on renewable energy portfolios and energy security in the UK. The scope of this study has a considerable range spanning from renewable resources through to the sensitivity of an optimal portfolio mix of generation technologies to climate change. In brief, the objectives were as follows: Characterise the variability of renewable energy resources and electricity generation output from renewable technology in the UK, in particular solar PV, on and offshore wind, for future climate scenarios for the 2050s and 2080s. Characterise the variability of electricity generation costs and explore the effect of climate change scenarios on generation costs and risk by examining the cost-risk balance of current and potential future low carbon electricity generation technology portfolios. The outcome saw distinctive changes in solar, wind, wave and hydro resource. The changes were largely negative, except in the case of solar, which increased. Levelised costs decreased for solar PV but increased for the technologies with negative resource changes. Evident changes in optimal portfolio mixes were observed and explored.

Yes / This paper investigates the impact of investor sentiment on the mean-variance relationship in 14 European stock markets. Applying three approaches to define investors’ neutrality and determine high and low sentiment periods, we find that individual investors’ increased presence and trading over high-sentiment periods would undermine the risk-return tradeoff. More importantly, we report that investors’ optimism (pessimism) is more determined by their normal sentiment state, represented by the all-period average sentiment level, rather than the neutrality value set in sentiment surveys.

Yes / This paper investigates the role of institutional investor sentiment in the mean–variance relation. We find market returns are negatively (positively) related to market’s conditional volatility over bullish (bearish) periods. The evidence indicates institutional investors to be sentiment traders as well.

Yes / This paper investigates the mean-variance relation during different time periods within trading days. We reveal that there is a positive mean-variance relation when the stock market is closed (i.e., overnight), but the positive relation is distorted when the market is open (i.e., intraday). The evidence offers a new explanation for the weak risk-return tradeoff in stock markets.

Interessado em fazer com que o seu capital gere lucros, o investidor ao optar por negociar ativos, fica sujeito aos riscos econômicos de qualquer negociação, pois não existe uma certeza quanto a valorização ou desvalorização de um ativo. Eis que surge o mercado futuro, em que é possível negociar contratos a fim de se proteger (hedge) dos riscos de perdas ou ganhos excessivos, fazendo com que a compra ou venda de ativos, seja justa para ambas as partes. O objetivo deste trabalho consiste em estudar os processos de Lévy de puro salto de atividade finita, também conhecido como modelo de Poisson composto, e suas aplicações. Proposto pelo matemático francês Paul Pierre Lévy, os processos de Lévy tem como principal característica admitir saltos em sua trajetória, o que é frequentemente observado no mercado financeiro. Determinaremos uma estratégia de hedging no modelo de mercado com o processo de Poisson composto via o conceito de mean-variance hedging e princípio da programação dinâmica. / The investor, that negotiate assets, is subject to economic risks of any negotiation because there is no certainty regarding the appreciation or depreciation of an asset. Here comes the futures market, where contracts can be negotiated in order to protect (hedge) the risk of excessive losses or gains, making the purchase or sale assets, fair for both sides. The goal of this work consist in study Lévy pure-jump process with finite activity, also known as compound Poisson process, and its applications. Discovered by the French mathematician Paul Pierre Lévy, the Lévy processes admits jumps in paths, which is often observed in financial markets. We will define a hedging strategy for a market model with compound Poisson process using mean-variance hedging and dynamic programming.

Interessado em fazer com que o seu capital gere lucros, o investidor ao optar por negociar ativos, fica sujeito aos riscos econômicos de qualquer negociação, pois não existe uma certeza quanto a valorização ou desvalorização de um ativo. Eis que surge o mercado futuro, em que é possível negociar contratos a fim de se proteger (hedge) dos riscos de perdas ou ganhos excessivos, fazendo com que a compra ou venda de ativos, seja justa para ambas as partes. O objetivo deste trabalho consiste em estudar os processos de Lévy de puro salto de atividade finita, também conhecido como modelo de Poisson composto, e suas aplicações. Proposto pelo matemático francês Paul Pierre Lévy, os processos de Lévy tem como principal característica admitir saltos em sua trajetória, o que é frequentemente observado no mercado financeiro. Determinaremos uma estratégia de hedging no modelo de mercado com o processo de Poisson composto via o conceito de mean-variance hedging e princípio da programação dinâmica. / The investor, that negotiate assets, is subject to economic risks of any negotiation because there is no certainty regarding the appreciation or depreciation of an asset. Here comes the futures market, where contracts can be negotiated in order to protect (hedge) the risk of excessive losses or gains, making the purchase or sale assets, fair for both sides. The goal of this work consist in study Lévy pure-jump process with finite activity, also known as compound Poisson process, and its applications. Discovered by the French mathematician Paul Pierre Lévy, the Lévy processes admits jumps in paths, which is often observed in financial markets. We will define a hedging strategy for a market model with compound Poisson process using mean-variance hedging and dynamic programming.

Ever since it was first introduced in an article in the Journal of Finance 1952, Harry Markowitz’ mean - variance model for portfolio selection has become one of the best known models in finance. The model was one of the first in the world to deal with portfolio optimization mathematically and have directly or indirectly inspired the rest of the world to develop new portfolio optimization methods. Although the model is one of the greatest contributions to modern portfolio theory, critics claim that it may have practical difficulties. Partly because the Markowitz model is based on various assumptions which do not necessarily coincide with the reality. The assumptions which are based on the financial markets and investor behavior contain the simplification that there are no transaction costs associated with financial trading. However, in reality, all financial products are subject to transaction costs such as brokerage fees and taxes. To determine whether this simplification leads to inaccurate results or not, we derive an extension of the mean-variance optimization model which includes brokerage fees occurred under the construction of an investment portfolio. We then compare our extension of the Markowitz model, including transaction costs, with the standard model. The results indicate that brokerage fees have a negligible effect on the standard model if the investor's budget is relatively large. Hence the assumption that no brokerage fees occur when trading financial securities seems to be an acceptable simplification if the budget is relatively high. Finally, we suggest that brokerage fees are negligible if the creation of the portfolio and hence the transactions only occurs once. However if an investor is active and rebalances his portfolio often, the brokerage fees could be of great importance. / Harry Markowitz portföljoptimeringsmodell har sedan den publicerades år 1952 i en artikel i the journal of Finance, blivit en av de mest använda modellerna inom finansvärlden. Modellen var en av dem första i världen att hantera portföljoptimering matematiskt och har direkt eller indirekt inspirerat omvärlden att utveckla nya portföljoptimeringsmetoder. Men trots att Markowitz modell är ett av de största bidragen till dagens portföljoptimeringsteori har kritiker hävdat att den kan ha praktiska svårigheter. Detta delvis på grund av att modellen bygger på olika antaganden som inte nödvändigtvis stämmer överens med verkligheten. Antagandena, som är baserad på den finansiella marknaden och individers investeringsbeteende, leder till förenklingen att transaktionskostnader inte förekommer i samband med finansiell handel. Men i verkligheten förekommer transaktions-kostnader som courtageavgifter och skatter nästintill alltid vid handel av finansiella produkter som t.ex. värdepapper. För att avgöra om modellen påvisar felaktiga resultat på grund av bortfallet av courtageavgifter härleds en utvidgning av Markowitz modell som inkluderar courtageavgifter. Utvidgningen av Markowitz modell jämförs sedan med originalmodellen. Resultaten tyder på att courtageavgifter har en försumbar effekt på originalmodellen om investeraren har en stor investeringsbudget. Slutsatsen är därför att, förenklingen att inga courtageavgifter förekommer är en acceptabel förenkling om investeringsbudgeten är stor. Det föreslås slutligen att courtageavgiften är försumbar om transaktionen av aktier endast sker en gång. Men om en investerare är aktiv och ombalanserar sin portfölj flitigt, kan courtageavgifterna vara av stor betydelse.

The aim of this thesis is to explore the role of bitcoin in an investment portfolio. The paper examines the nature of bitcoin and additionally how bitcoin compares to gold when included in an investment portfolio. This report uses the historical value of bitcoin and investigates with a Mean-Variance model how the risk-adjusted return of an optimized portfolio is affected when bitcoin is a constituent. By comparing Sharpe Ratios from the optimized portfolios, a conclusion can be drawn as to whether bitcoin affects the maximum Sharpe ratio or the global minimum variance point. Our study suggests that including bitcoin in an investment portfolio increases the risk-adjusted return of the portfolio. In addition, portfolios optimized with bitcoin outperform the market. Further, we conclude that bitcoin has a relatively high correlation as compared to gold with the assets in the study. Hence, bitcoin is not the new gold.