"Department of Industrial Engineering and Economics Working Paper 2017-7" is now available
Department of Industrial Engineering and Economics Working Paper 2017-7
Department of Industrial Engineering and Economics issues the series of Working Paper to highlight our recent research activities.
The latest issue, 2017-7: Taeko Kuwayama, Tomonari Kitahara, Shinji Mizuno, Sho Uekusa, A CVaR model with an optimal hedging strategy for international portfolio selection
- Title of original paper
- A CVaR model with an optimal hedging strategy for international portfolio selection
- Taeko Kuwayama, Tomonari Kitahara, Shinji Mizuno, Sho Uekusa
- For international portfolio selection, currency risks affect the performance of a portfolio. We can reduce currency risks by introducing forward contracts. In this paper, we propose an optimization model for international portfolio selection with hedging strategies using forward contracts. As a risk measure, we use Conditional Value at Risk (CVaR) of the portfolio's return. The model decides both a portfolio and hedge ratios simultaneously such that CVaR is minimized under the condition that the expected return of the portfolio is not less than a predetermined value. At first, the model is formulated as a nonlinear programming problem. Then we will show that the model is equivalently converted to a linear programming problem. We conduct numerical experiments to evaluate the proposed model. As a result, we observe that the proposed model automatically adjusts the portfolio and the hedge ratios according to market environments and this adjustment leads to a stable performance of the portfolio.
Following issues of Working Paper will appear as soon as available.