Decision Sciences
3 years ago

Historical Simulation Method Proven Best for Minimizing Portfolio Risk

DOAJ (DOAJ: Directory of Open Access Journals)
Portfolio optimization with VaR approach: A comparative analysis for Japan, London, New York and India
Parul Bhatia, Priya Gupta

Paper Summary

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The article compares different methods for estimating risk in investment portfolios. They looked at four techniques: Historical Simulation, Variance Covariance Approach, Monte Carlo Simulation, and AR-GARCH method. The study found that the Historical Simulation method was the most effective for estimating Value at Risk. This method is commonly used by risk managers in the banking sector. Despite some limitations, historical data proved to be reliable for all four portfolios analyzed.