A Framework for the Active Management of a Global Currency Fund

Abstract

We consider the problem of optimally managing an investment fund by tak ing positions in spot and derivatives foreign exchange markets. The framework proposed combines scenario analysis and downside risk to provide an optimiza tion model more realistic and conceptually superior when compared to previous currency works based on the Markowitz's Mean-Variance framework. A histori cal simulation covering three years, and involving eleven currencies, is presented to illustrate the potential of the framework. Extensions to cover multiperiod investment analysis are also discussed. ResumoConsideramos 0 problema de administrar urn fundo de investimentos no mercado de cambia mundial. A nossa pro posta combina analise de cenarios e medidas assimetricas de risco de forma a obter urn modelo de otimizagao mais realista e conceitualmente superior quando comparado a trabalhos anteriares que se basearam na analise Media-Variancia de Markowitz. Uma simulagao hist6rica cobrindo tres anos, e envolvenda anze moedas, e apresentada para ilustrar 0 po tencial da metadologia. Extensoes para investimentas multi-periodo sao forneci das tambem.