A Research On The Dynamic Correlation In Portfolio Risk Management

With the globalization of the financial market, the development of information technology and the emergence of new financial derivatives, the risks that the financial institutions faced have become more complex and inconstancy. Under this circumstance, the management of the financial risk becomes more and more crucial to the financial institute and nation's security. The estimation and prediction of the volatility of the asset return play a key role in the risk management. Also, this aspect becomes one of hot issue in the academic research.The paper investigates one of the key elements in the risk management, the estimation of the correlation between the assets. There are fore parts: Introduction (Chapter 1); The summary of the related issues (Chapter 2~3); The comparison on the estimation methods of the dynamic correlation(Chapter 4~5); Conclusions (Chapter 6)The detailed content is as follows:(1) Chapter 1 discusses the background, introduction of the problem, and the development of related researchs, also introduced the content, structure and innovation of the dissertation.(2) In the Chapter 2, based on the time sequence, the development of the portfolios theory is introduced. The most recent development on this issue also is discussed. Chapter 3 contains the summary of the estimation methods and prediction methods on the volatility, the definition and measurement of volatility. At last the volatility status of China market is described by using low frequency and high frequency exchange data.(3) Chapter 4 contains the introduction on the estimation of portfolio's covariance matrix. The comparisons of the different correlation estimation methods and the comparison of different prediction methods are investigated on the theoretical view. Chapter 5 the economic value of volatility timing, based on the different correlation estimation methods, is compared.(4) Chapter 6 is the conclusion of dissertation.