A Monte Carlo simulation technique to determine the optimal portfolio

Abstract

During the past few years, there have been several studies for portfolio management. One of the primary concerns on any stock market is to detect the risk associated with various assets. One of the recognized methods in order to measure, to forecast, and to manage the existing risk is associated with Value at Risk (VaR), which draws much attention by financial institutions in recent years. VaR is a method for recognizing and evaluating of risk, which uses the standard statistical techniques and the method has been used in other fields, increasingly. The present study has measured the value at risk of 26 companies from chemical industry in Tehran Stock Exchange over the period 2009-2011 using the simulation technique of Monte Carlo with 95% confidence level. The used variability in the present study has been the daily return resulted from the stock daily price change. Moreover, the weight of optimal investment has been determined using a hybrid model called Markowitz and Winker model in each determined stocks. The results showed that the maximum loss would not exceed from 1259432 Rials at 95% confidence level in future day.

On Monte-Carlo methods in convex stochastic optimization

“…[35,Section 1.4]. As such, and with the exception of perhaps more applied studies like [8,42,44], existing estimates on the problem have been derived as applications of general results-much like in our work.…”

‘Monte Carlo’ Simulation Predicting on the Movement of Investments – During the Covid Pandemic in Indonesia

“…We can use simulations besides operational research methods, especially in financial operations used to solve stochastic problems (Chen & Raggi & Bordignon, 2006;Tompkins & D'Ecclesia, 2006;Ng, 2007;Casari, 2008;Castañeda & Reus, 2009;Vagnani, 2009;Chen & Huang, 2008;Rossi & Spazzini, 2010;Chou, 2011;Huang, 2012;Yu & Huang, 2013;Melouk et al, 2014;Acebes et al, 2015;Buchner, 2015;Nadarajah & Secomandi, 2017;Wee et al, 2020). Simulation can represent dynamic behavior (Tompkins & D'Ecclesia, 2006;Casari, 2008;Yu & Huang, 2013;Ghodrati & Zahiri, 2014;Neaime, 2015;Ferrer et al, 2016;Lai, 2018) from a system into a model, this simulation aims to evaluate a system model numerically (Yang, 2005;Sanford & Martin, 2005;Raggi & Bordignon, 2006;Casari, 2008;Chen & Huang, 2008;Rossi & Spazzini, 2010;Chen & Huang, 2012;Driessen et al, 2012;Kang et al, 2012;Yu & Huang, 2013;Ghodrati & Zahiri, 2014;Melouk et al, 2014;Denault & Simonato, 2017;Nadarajah & Secomandi, 2017;…”

Portfolio Selection by the Means of Cuckoo Optimization Algorithm

“…Nowadays, stock market acts a very important role in economic development using the tools like pricing, reducing the risk, resource mobilization and optimal allocation of capital [2].Selecting the optimal portfolio is the most important issue. There are different methods for selecting the optimal portfolio based on the results of the research in this field [3].…”