This thesis seeks to create a simple model facilitating the decisions about asset allocation policy of a dollar investor with long-term investment horizon. The theoretical background is provided by Modern Portfolio Theory briefly discussed in the first part of the thesis. Second part focuses on different approaches to risk measurement. The Black-Litterman equilibrium approach is used for the estimation of future returns. The model itself takes into account higher moments of the probability distr... show full abstractThis thesis seeks to create a simple model facilitating the decisions about asset allocation policy of a dollar investor with long-term investment horizon. The theoretical background is provided by Modern Portfolio Theory briefly discussed in the first part of the thesis. Second part focuses on different approaches to risk measurement. The Black-Litterman equilibrium approach is used for the estimation of future returns. The model itself takes into account higher moments of the probability distributions of seven different assets' returns and uses copula functions to describe their inter-dependencies. The performance of the model is then compared with alternative methods of passive portfolio construction. |