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Securities portfolio selection using the risk margin

Vol. 24, Iss. 12, DECEMBER 2018

Received: 13 September 2018

Received in revised form: 27 September 2018

Accepted: 11 October 2018

Available online: 24 December 2018

Subject Heading: Securities market

JEL Classification: G11, G32

Pages: 2708–2720

Maleeva E.A. National Research Tomsk Polytechnic University (TPU), Tomsk, Russian Federation

ORCID id: not available

Bel'sner O.A. National Research Tomsk Polytechnic University (TPU), Tomsk, Russian Federation

ORCID id: not available

Kritskii O.L. National Research Tomsk Polytechnic University (TPU), Tomsk, Russian Federation

Subject The article considers the issues of securities portfolio building, using the risk margin value, or Value-at-Risk (VaR) measure.
Objectives The article aims to study the impact of risk margin on the amount of total capital and the optimal portfolio allocation. It is necessary to update the classical approach of Markowitz and adapt it to the current requirements in the banking and financial spheres.
Methods For the study, we used the Benati–Rizzi methodology and the mixed-integer linear programming algorithm.
Results We offer our own portfolio selection model taking into account the risk margin value. The article shows the portfolios selected according to the classical algorithm of Markowitz and taking into account the VaR constraints, as well as the results of comparison of the yield and value of two portfolios composed of the shares included in the MICEX 10 Index. The article also shows the results of calculating the risk and yield of passive portfolio investments.
Conclusions and Relevance The presented model of portfolio selection taking into account the margin risk value helps reduce initial investments, weaken the influence of stock market slump on the portfolio value, and increase the investment ex post return at the risk level comparable to the classical methodology of Markowitz. The use of the Benati-Rizzi method is convenient for creating a wide range of investment portfolios for unsophisticated investors with different risk aversion attitude.

Keywords: risk margin, portfolio management, Benati-Rizzi method, Markowitz method


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