Physical Sciences and Mathematics Commons^™

An Optimization Model For Minimization Of Systemic Risk In Financial Portfolios, Zachary Alexander Gelber

Master's Theses

In this thesis, we study how sovereign credit default swaps are able to measure systemic risk as well as how they can be used to construct optimal portfolios to minimize risk. We define the clustering coefficient as a proxy for systemic risk and design an optimization problem with the goal of minimizing the mean absolute deviation of the clustering coefficient on a group of nine European countries. Additionally, we define a metric we call the diversity score that measures the diversification of any given portfolio. We solve this problem for a baseline set of parameters, then spend the remainder of …