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Investment Management Risk
Abstract
Proposed method is applied to Investment Management for portfolio selection to achieve investment objectives controlling risk. DMAIC framework applies stochastic techniques to investment risk management. Optimisation constructs Efficient Frontier of optimal portfolios with expected return in a predefined range with a determined increment. Simulation calculates and measures the portfolio return, Variance, Standard Deviation, Value at Risk (VAR), Sharpe Ratio and Beta of Efficient Frontier portfolios; Six Sigma capability metrics of investment process are calculated versus specified limits. Analysis allows for selection of the best Efficient Frontier portfolio with maximum Sharpe Ratio. Simulation sensitivity analysis identifies the riskiest asset. Portfolio revision considers options to improve the portfolio and replaces the asset with an option to reduce risk. Portfolio execution implements the revised portfolio. Ongoing portfolio management evaluates portfolio performance on regular basis and if required, revises the portfolio considering changes in the market and investor's position.
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