Dynamic Consumption And Portfolio Choice With Stochastic Volatility In Incomplete Markets
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Dynamic Consumption And Portfolio Choice With Stochastic Volatility In Incomplete Markets
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Author : George Chacko
language : en
Publisher:
Release Date : 2010
Dynamic Consumption And Portfolio Choice With Stochastic Volatility In Incomplete Markets written by George Chacko and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
This paper examines the optimal consumption and portfolio-choice problem of long-horizon investors who have access to a riskless asset with constant return and a risky asset (quot;stocksquot;) with constant expected return and time-varying precision-the reciprocal of volatility. Markets are incomplete, and investors have recursive preferences defined over intermediate consumption. The paper obtains a solution to this problem which is exact for investors with unit elasticity of intertemporal substitution of consumption and approximate otherwise. The optimal portfolio demand for stocks includes an intertemporal hedging component that is negative when investors have coefficients of relative risk aversion larger than one, and the instantaneous correlation between volatility and stock returns is negative, as typically estimated from stock return data. Our estimates of the joint process for stock returns and precision (or volatility) using U.S. data confirm this finding. But we also find that stock return volatility does not appear to be variable and persistent enough to generate large intertemporal hedging demands.
Dynamic Consumption And Portfolio Choice With Stochastic Volatility In Incomplete Markets
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Author :
language : en
Publisher:
Release Date : 1999
Dynamic Consumption And Portfolio Choice With Stochastic Volatility In Incomplete Markets written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.
Dynamic Consumption And Portfolio Choice Wiht Stochastic Volatility In Incomplete Markets
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Author : George K. Chacko
language : en
Publisher:
Release Date : 1999
Dynamic Consumption And Portfolio Choice Wiht Stochastic Volatility In Incomplete Markets written by George K. Chacko and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.
Dynamic Consumption And Portfolio Choice With Stochastic Volatily In Incomplete Markets
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Author : George Chacko
language : en
Publisher:
Release Date : 1999
Dynamic Consumption And Portfolio Choice With Stochastic Volatily In Incomplete Markets written by George Chacko and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.
Robust Portfolio Choice And Consumption With Derivative Trading Under Stochastic Volatility And Jumps
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Author : Pengyu Wei
language : en
Publisher:
Release Date : 2018
Robust Portfolio Choice And Consumption With Derivative Trading Under Stochastic Volatility And Jumps written by Pengyu Wei and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
This paper analyzes the optimal consumption and portfolio choice problem for an ambiguity averse investor who has access to the stock and derivatives markets with recursive preferences. The stock process follows a stochastic volatility jump-diffusion model and the investor can have different levels of ambiguity about diffusion risks and the jump risk, respectively. We obtain an analytical solution which is exact when the investor has unit elasticity of intertemporal substitution of consumption, and approximate otherwise. We find that optimal exposures to diffusion risks and to the jump risk are significantly affected by the ambiguity aversion about the corresponding risk factors in the complete market. However, the optimal stock investment is insensitive to the ambiguity aversion about the jump risk in the incomplete market. We also find that considering ambiguity aversion with respect to diffusion risks and participating in the derivatives markets are essential to reduce the potential welfare loss, while the impact of ignoring the jump ambiguity is negligible.
Strategic Asset Allocation
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Author : John Y. Campbell
language : en
Publisher: OUP Oxford
Release Date : 2002-01-03
Strategic Asset Allocation written by John Y. Campbell and has been published by OUP Oxford this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-01-03 with Business & Economics categories.
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Asset Pricing And Portfolio Choice Theory
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Author : Kerry E. Back
language : en
Publisher: Oxford University Press
Release Date : 2017-01-04
Asset Pricing And Portfolio Choice Theory written by Kerry E. Back and has been published by Oxford University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-01-04 with Business & Economics categories.
In the 2nd edition of Asset Pricing and Portfolio Choice Theory, Kerry E. Back offers a concise yet comprehensive introduction to and overview of asset pricing. Intended as a textbook for asset pricing theory courses at the Ph.D. or Masters in Quantitative Finance level with extensive exercises and a solutions manual available for professors, the book is also an essential reference for financial researchers and professionals, as it includes detailed proofs and calculations as section appendices. The first two parts of the book explain portfolio choice and asset pricing theory in single-period, discrete-time, and continuous-time models. For valuation, the focus throughout is on stochastic discount factors and their properties. A section on derivative securities covers the usual derivatives (options, forwards and futures, and term structure models) and also applications of perpetual options to corporate debt, real options, and optimal irreversible investment. A chapter on "explaining puzzles" and the last part of the book provide introductions to a number of additional current topics in asset pricing research, including rare disasters, long-run risks, external and internal habits, asymmetric and incomplete information, heterogeneous beliefs, and non-expected-utility preferences. Each chapter includes a "Notes and References" section providing additional pathways to the literature. Each chapter also includes extensive exercises.
Contemporary Quantitative Finance
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Author : Carl Chiarella
language : en
Publisher: Springer Science & Business Media
Release Date : 2010-07-01
Contemporary Quantitative Finance written by Carl Chiarella and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-07-01 with Mathematics categories.
This volume contains a collection of papers dedicated to Professor Eckhard Platen to celebrate his 60th birthday, which occurred in 2009. The contributions have been written by a number of his colleagues and co-authors. All papers have been - viewed and presented as keynote talks at the international conference “Quantitative Methods in Finance” (QMF) in Sydney in December 2009. The QMF Conference Series was initiated by Eckhard Platen in 1993 when he was at the Australian - tional University (ANU) in Canberra. Since joining UTS in 1997 the conference came to be organised on a much larger scale and has grown to become a signi?cant international event in quantitative ?nance. Professor Platen has held the Chair of Quantitative Finance at the University of Technology, Sydney (UTS) jointly in the Faculties of Business and Science since 1997. Prior to this appointment, he was the Founding Head of the Centre for Fin- cial Mathematics at the Institute of Advanced Studies at ANU, a position to which he was appointed in 1994. Eckhard completed a PhD in Mathematics at the Technical University in Dresden in 1975 and in 1985 obtained his Doctor of Science degree (Habilitation degree in the German system) from the Academy of Sciences in Berlin where he headed the Stochastics group at the Weierstrass Institute.
Advances In Mathematical Finance
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Author : Michael C. Fu
language : en
Publisher: Springer Science & Business Media
Release Date : 2007-06-22
Advances In Mathematical Finance written by Michael C. Fu and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-06-22 with Business & Economics categories.
This self-contained volume brings together a collection of chapters by some of the most distinguished researchers and practitioners in the field of mathematical finance and financial engineering. Presenting state-of-the-art developments in theory and practice, the book has real-world applications to fixed income models, credit risk models, CDO pricing, tax rebates, tax arbitrage, and tax equilibrium. It is a valuable resource for graduate students, researchers, and practitioners in mathematical finance and financial engineering.
Predictions Nonlinearities And Portfolio Choice
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Author : Friedrich Christian Kruse
language : en
Publisher: BoD – Books on Demand
Release Date : 2012
Predictions Nonlinearities And Portfolio Choice written by Friedrich Christian Kruse and has been published by BoD – Books on Demand this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Business & Economics categories.
Finance researchers and asset management practitioners put a lot of effort into the question of optimal asset allocation. With this respect, a lot of research has been conducted on portfolio decision making as well as quantitative modeling and prediction models. This study brings together three fields of research, which are usually analyzed in an isolated manner in the literature: - Predictability of asset returns and their covariance matrix - Optimal portfolio decision making - Nonlinear modeling, performed by artificial neural networks, and their impact on predictions as well as optimal portfolio construction Including predictability in asset allocation is the focus of this work and it pays special attention to issues related to nonlinearities. The contribution of this study to the portfolio choice literature is twofold. First, motivated by the evidence of linear predictability, the impact of nonlinear predictions on portfolio performances is analyzed. Predictions are empirically performed for an investor who invests in equities (represented by the DAX index), bonds (represented by the REXP index) and a risk-free rate. Second, a solution to the dynamic programming problem for intertemporal portfolio choice is presented. The method is based on functional approximations of the investor's value function with artificial neural networks. The method is easily capable of handling multiple state variables. Hence, the effect of adding predictive parameters to the state space is the focus of analysis as well as the impacts of estimation biases and the view of a Bayesian investor on intertemporal portfolio choice. One important empirical result shows that residual correlation among state variables have an impact on intertemporal portfolio decision making.