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Dynamic asset allocation with uncertain jump risks : a pathwise optimization approach
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Jin, Xing, Luo, Dan and Zeng, Xudong (2018) Dynamic asset allocation with uncertain jump risks : a pathwise optimization approach. Mathematics of Operations Research, 43 (2). pp. 347-376. doi:10.1287/moor.2017.0854 ISSN 0364-765X.
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Official URL: https://doi.org/10.1287/moor.2017.0854
Abstract
This paper studies the dynamic portfolio choice problem with ambiguous jump risks in a multi-dimensional jump-diffusion framework. We formulate a continuous-time model of incomplete market with uncertain jumps. We develop an efficient pathwise optimization procedure based on the martingale methods and
minimax results to obtain closed-form solutions for the indirect utility function and the probability of the worst scenario. We then introduce an orthogonal decomposition method for the multi-dimensional problem to derive the optimal portfolio strategy explicitly under ambiguity aversion to jump risks. Finally, we calibrate our model to real market data drawn from ten international indices and illustrate our results by numerical examples. The certainty equivalent losses affirm the importance of jump uncertainty in optimal portfolio choice.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
Library of Congress Subject Headings (LCSH): | Portfolio management, Investment analysis | ||||||||
Journal or Publication Title: | Mathematics of Operations Research | ||||||||
Publisher: | Informs | ||||||||
ISSN: | 0364-765X | ||||||||
Official Date: | May 2018 | ||||||||
Dates: |
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Volume: | 43 | ||||||||
Number: | 2 | ||||||||
Page Range: | pp. 347-376 | ||||||||
DOI: | 10.1287/moor.2017.0854 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 6 February 2017 |
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