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Author: Yang Shen
Publisher:
ISBN:
Category : Assets (Accounting)
Languages : en
Pages : 157
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Book Description
Regime-switching models are very useful to describe structural changes in macro-economic conditions, periodical fluctuations in business cycles and sudden transitions in market modes. In this these, a continuous-time, finite-state, observable Markov chain is adopted to model the regime switches. The first part of the thesis is devoted to asset pricing problems under regime-switching models. In the second part stochastic optimal control theory is applied to explore portfolio optimization problems under regime-switching models.
Author: Yang Shen
Publisher:
ISBN:
Category : Assets (Accounting)
Languages : en
Pages : 157
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Book Description
Regime-switching models are very useful to describe structural changes in macro-economic conditions, periodical fluctuations in business cycles and sudden transitions in market modes. In this these, a continuous-time, finite-state, observable Markov chain is adopted to model the regime switches. The first part of the thesis is devoted to asset pricing problems under regime-switching models. In the second part stochastic optimal control theory is applied to explore portfolio optimization problems under regime-switching models.
Author: JUN. FU
Publisher:
ISBN: 9781361279168
Category :
Languages : en
Pages :
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Book Description
This dissertation, "Asset Pricing, Hedging and Portfolio Optimization" by Jun, Fu, 付君, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Starting from the most famous Black-Scholes model for the underlying asset price, there has been a large variety of extensions made in recent decades. One main strand is about the models which allow a jump component in the asset price. The first topic of this thesis is about the study of jump risk premium by an equilibrium approach. Different from others, this work provides a more general result by modeling the underlying asset price as the ordinary exponential of a L'vy process. For any given asset price process, the equity premium, pricing kernel and an equilibrium option pricing formula can be derived. Moreover, some empirical evidence such as the negative variance risk premium, implied volatility smirk, and negative skewness risk premium can be well explained by using the relation between the physical and risk-neutral distributions for the jump component. Another strand of the extensions of the Black-Scholes model is about the models which can incorporate stochastic volatility in the asset price. The second topic of this thesis is about the replication of exponential variance, where the key risks are the ones induced by the stochastic volatility and moreover it can be correlated with the returns of the asset, referred to as leverage effect. A time-changed L'vy process is used to incorporate jumps, stochastic volatility and leverage effect all together. The exponential variance can be robustly replicated by European portfolios, without any specification of a model for the stochastic volatility. Beyond the above asset pricing and hedging, portfolio optimization is also discussed. Based on the Merton (1969, 1971)'s reduced portfolio optimization and the delta hedging problem, a portfolio of an option, the underlying stock and a risk-free bond can be optimized in discrete time and its optimal solution can be shown to be a mixture of the Merton's result and the delta hedging strategy. The main approach is the elasticity approach, which has initially been proposed in continuous time. In addition to the above optimization problem in discrete time, the same topic but in a continuous-time regime-switching market is also presented. The use of regime-switching makes our market incomplete, and makes it difficult to use some approaches which are applicable in complete market. To overcome this challenge, two methods are provided. The first method is that we simply do not price the regime-switching risk when obtaining the risk-neutral probability. Then by the idea of elasticity, the utility maximization problem can be formulated as a stochastic control problem with only a single control variable, and explicit solutions can be obtained. The second method is to introduce a functional operator to general value functions of stochastic control problem in such a way that the optimal value function in our setting can be given by the limit of a sequence of value functions defined by iterating the operator. Hence the original problem can be deduced to an auxiliary optimization problem, which can be solved as if we were in a single-regime market, which is complete. DOI: 10.5353/th_b4819934 Subjects: Capital assets pricing model He
Author: George Yin
Publisher: Springer
ISBN: 3030254984
Category : Mathematics
Languages : en
Pages : 599
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Book Description
This volume collects papers, based on invited talks given at the IMA workshop in Modeling, Stochastic Control, Optimization, and Related Applications, held at the Institute for Mathematics and Its Applications, University of Minnesota, during May and June, 2018. There were four week-long workshops during the conference. They are (1) stochastic control, computation methods, and applications, (2) queueing theory and networked systems, (3) ecological and biological applications, and (4) finance and economics applications. For broader impacts, researchers from different fields covering both theoretically oriented and application intensive areas were invited to participate in the conference. It brought together researchers from multi-disciplinary communities in applied mathematics, applied probability, engineering, biology, ecology, and networked science, to review, and substantially update most recent progress. As an archive, this volume presents some of the highlights of the workshops, and collect papers covering a broad range of topics.
Author: Giorgio Costa
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
We formulate a novel Markov regime-switching factor model to describe the cyclical nature of asset returns in modern financial markets. Maintaining a factor model structure allows us to easily derive the asset expected returns and their corresponding covariance matrix. By design, these two parameters are calibrated to better describe the properties of the different market regimes. In turn, these regime-dependent parameters serve as the inputs during mean-variance optimization, thereby constructing portfolios adapted to the current market environment. Through this formulation, the proposed model allows for the construction of large, realistic portfolios at no additional computational cost during optimization. Moreover, the viability of this model can be significantly improved by periodically re-balancing the portfolio, ensuring proper alignment between the estimated parameters and the transient market regimes. An out-of-sample computational experiment over a long investment horizon shows that the proposed regime-dependent portfolios are better aligned with the market environment, yielding a higher ex post rate of return and lower volatility than competing portfolios.
Author: Jingzhi Chang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Stephen Boyd
Publisher:
ISBN: 9781680833287
Category : Mathematics
Languages : en
Pages : 92
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Book Description
This monograph collects in one place the basic definitions, a careful description of the model, and discussion of how convex optimization can be used in multi-period trading, all in a common notation and framework.
Author: Houmin Yan
Publisher: Springer Science & Business Media
ISBN: 0387338152
Category : Technology & Engineering
Languages : en
Pages : 397
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Book Description
This edited volume contains 16 research articles. It presents recent and pressing issues in stochastic processes, control theory, differential games, optimization, and their applications in finance, manufacturing, queueing networks, and climate control. One of the salient features is that the book is highly multi-disciplinary. The book is dedicated to Professor Suresh Sethi on the occasion of his 60th birthday, in view of his distinguished career.
Author: Sarthak Garg
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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The aim of this thesis is to develop a Markov Regime Switching framework that can be used in asset allocation in conjunction with Modern Portfolio Theory. Modern Portfolio Theory has long been a popular tool among big financial institutions. However, one of its major limitations is assumption of stationary market volatility. In this paper, we develop a single period Mean Variance Optimization model that minimizes the variance of a portfolio subject to a specified expected return by combining Modern Portfolio Theory with a Markov Regime Switching framework. Then, we extend the above developed framework to be used in conjunction with a robust optimization framework as proposed by Goldfarb Iyengar in which regards we were partially successful. The portfolios constructed by the Markov Regime-Switching framework were tested out of sample to outperform those suggested by a Simple MVO One Factor model and the Robust MVO One Factor Model.
Author: Edwin O. Fischer
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Evert Wipplinger
Publisher:
ISBN:
Category :
Languages : en
Pages :
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