The Asset Allocation and Risk Evaluation of A Basket of Currencies
Date Issued
2006
Date
2006
Author(s)
Wang, Yi-Wen
DOI
zh-TW
Abstract
In Taiwan, life insurance policies issued are mainly long term; therefore, longer investment tools are required in asset allocation at the same time. For the domestic market, the shortage of effective long-term investment tools and the return of investment being far lower than foreign average made the percentage of foreign investment in respect of the available capital go up gradually. However, the insurance company lays more emphasis on the United States in terms of foreign investment. As a result, the thesis discusses whether the outcome would be better if the insurance companies put their money in more different countries instead of in Taiwan and the United States only.
In addition, the traditional mathematical method—expected return-variance—is used to evaluate risk. The risk valuation based on variance implies that the expected returns, either positive or negative, are irrelevant to the investors, which does not conform to the present condition. In fact, the investors care about the degree of downside risk. Hence, the thesis uses VaR to evaluate the risk.
In empirical, the thesis practices asset allocation by pooling a basket of currencies from 13 countries. By the analysis, the correlations between the international assets are moderate or low-correlated, indicating that the asset risk is reduced compared to the one invested in Taiwan and the United States only. The efficiency frontier of the portfolio moves outward. Under the assumption of normally distributed asset return, there is little difference in the efficiency frontier plot between the variance method and the VaR one used as risk evaluation indicators.
Subjects
資產配置
風險值
效率前緣
Asset Allocation
VaR
Efficient Frontier
Type
thesis