Ingeniería Financiera y Portafolios Óptimos con Cambio de Régimen

Abstract

Financial Engineering and Optimal Portfolios with Regime Switching

The work aims to apply a first order Markov regime switching model with multivariate α-stable distributions to optimize portfolio selection by estimating the model parameters using time series of the logarithmic returns of the daily prices of the ipc and naftrac to detect market regimes. The model captures asymmetry and leptokurtosis in each regime, identifying with the appreciated and depreciated regimes, demonstrating the model's effectiveness in reflecting the dynamics of the Mexican financial market. It is suggested to apply the Markov regime switching model in portfolio management to improve diversification, risk management, and for continuous risk assessment under different market conditions. The model assumes homogeneity in the transition parameters between regimes, which is not entirely realistic, so it is necessary to include adaptations for specific contexts and consider other macroeconomic factors. The originality of the work lies in the integration of multivariate α-stable distributions with Markov regime switching, providing a tool for financial risk management. The study concludes that the proposed model is effective in capturing the statistical characteristics of returns in different market regimes, significantly contributing to the field of financial engineering and portfolio management.