This paper seeks to unconventionally maximize the volatility of a portfolio through a quartic optimization based on Markowitz’s modern portfolio theory, which generally seeks to do exactly the opposite. It shows that through this method, a daily leveraged exchange traded fund (ETF) strategy investigated by Posterro can be significantly improved upon in terms of its Sharpe ratio. The original strategy seeks to use a combination of momentum trading and tracking error in leveraged ETFs to trade during the last half an hour of the trading day, but it suffers in a low volatility market. By maximizing the volatility to take better advantage of tracking error and momentum, this problem is addressed by both increasing the mean daily return and significantly decreasing the variance of the strategy’s daily returns. GARCH forecasting is also implemented to assist in the maximization of the daily portfolios’ variances, though this does not prove to make a statistically significant difference in the strategy’s performance.

Creator

• DeWeese, Jackson Paul

Colaboradores

• Blais, Marcel Y.

Degree

• MS

Unit

• Mathematical Sciences

Publisher

• Worcester Polytechnic Institute

Language

• English

Identifier

• etd-042513-204908

Palavra-chave

• Markowitz
• volatility
• tracking error
• trading
• leveraged ETF
• Optimization
• momentum trading

Advisor

• Blais, Marcel Y.

Defense date

• 2013-04-25

Year

• 2013

Date created

• 2013-04-25

Resource type

• Thesis

Rights statement

• In Copyright

Última modificação

• 2021-01-28