TITLE:
Application of Volatility in Portfolio Construction
AUTHORS:
Michael Ha, George Z. Liu, Lihui Zheng
KEYWORDS:
Volatility, VIX, Tracking Error, Active Risk, Risk Decomposition, Risk Characteristics
JOURNAL NAME:
Journal of Applied Mathematics and Physics,
Vol.3 No.7,
June
30,
2015
ABSTRACT: We studied the CBOE Market Volatility Index
from 1995 to 2004 and the Cross-Sectional Volatility of MSCI US and MSCI AC
Asia ex Japan of the same period. Tracking Error calculations and Market
Volatility Analyses were performed. We selected a portfolio, Dragon, for Risk
Analysis, Risk Decomposition and Risk Characteristics identification purposes.
A conclusion relating Dragon’s Tracking Error and its Portfolio Size was drawn.