Estimation of alpha in defined benefit pensions funds with a t-Student O-GARCH Matrix. A test in Pensiones Civiles del Estado de Michoacán.
De la Torre-Torres, Oscar V.
Estocástica, finanzas y riesgos
Portfolio Selection; Asset Pricing; Financial forecasting and Simulation; Hypothesis testing
This paper presents an assesment of an active portfolio management pro- cess with a t-Student orthogonal GARCH (O-GARCH) covariance matrix, in order to achieve a 7.5% actuarial target return and to formulate al- pha in defined benefit pension funds for Dirección de Pensiones Civiles del Estado de Michoacán. To test this, three discrete event simulations were performed using, in the first one, a passive portfolio management process with a target position rebalancing discipline and, in the other two, an ac- tive portfolio management with range portfolio rebalancing where an equally weighted covariance and a t-Student O-GARCH covariance matrix are used. The results suggest that the O-GARCH matrix is suitable for ac- tive portfolio management in this sort of pension funds.