• Corpus ID: 221879400

Portfolio Optimization on Multivariate Regime Switching GARCH Model with Normal Tempered Stable Innovation.

  title={Portfolio Optimization on Multivariate Regime Switching GARCH Model with Normal Tempered Stable Innovation.},
  author={Cheng Peng and Young Shin Kim},
  journal={arXiv: Risk Management},
We propose a Markov regime switching GARCH model with multivariate normal tempered stable innovation to accommodate fat tails and other stylized facts in returns of financial assets. The model is used to simulate sample paths as input for portfolio optimization with risk measures, namely, conditional value at risk and conditional drawdown. The motivation is to have a portfolio that avoids left tail events by combining models that incorporates fat tail with optimization that focuses on tail risk… 

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