Investment portfolio based on value at risk (VaR) and conditional value at risk (CVaR) with emphasis on the role of return distribution

Document Type : Original Article

Authors
Hoseinali Heydarzadeh 1
Fraydoon Rahnamay roodposhti 2
Alireza Rashidi komijan 3
Seyed Esmaeil Najafi 4
1 Department of Industrial Management & Economic, Science and Research Branch
2 Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran
3 Department of Industrial Engineering, Firoozkoh Branch, Islamic Azad University, Firoozkoh, Iran
4 Department of Industrial Engineering, Science and Research Branch, Islamic Azad University,Tehran, Iran
10.30495/jik.2024.77119.4480
Abstract
In this study, VaR and CvaR portfolio performance was compared based on return probability distributions. For this purpose, the stock returns of 28 active symbols of chemical products group of Tehran Stock Exchange during the period from April 2019 to August 2023 were used. The results based on the solution of linear programming with the particle swarm optimization algorithm showed that the formation of portfolio based on VaR/CVaR leads to higher performance (return to risk ratio) compared to the minimum variance method. The separation of the portfolio performance results based on the probability distribution of stock returns showed that the VaR/CVaR based on the empirical distribution of data and at the confidence levels of 90, 95 and 99 percent, provides more favorable performance and the ratio of return to portfolio risk for the portfolio resulting from the empirical distribution of the data is higher.Regardless of the usefulness of VaR and CvaR methods in portfolio formation compared to minimum variance portfolios, calculating the return distribution based on the empirical distribution is desirable in the Iranian capital market.
Keywords
Value at Risk
Portofolio
Return Distribution

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