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Author: Abraham Lioui
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
Author: Abraham Lioui
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
Get Book Here
Book Description
Author: Abraham Lioui
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In an economy where interest rates and stock price changes follow fairly general stochastic processes, we analyse the portfolio problem of an expected utility investor. When the investment opportunity set is driven by an arbitrary number of state variables, the optimal portfolio strategy is known to contain a speculative element and Merton-Breeden hedging terms against the fluctuations of each and every state variable. While the first component is well identified and easy to work out, the implementation of the last ones is problematic as the investor must identify all the relevant state variables and estimate their distribution characteristics. Using a new decomposition of the optimal wealth, we show that the optimal strategy can be simplified to include, in addition to the speculative component, only two Merton-Breeden type hedging elements, however large is the number of state variables. The first one is associated with interest rate risk and the second one with the risk brought about by the co-movements of the spot interest rate and the market prices of risk. The implementation of the optimal strategy is thus much easier, as it involves estimating the characteristics of the yield curve and the market prices of risk only rather than those of numerous (a priori unknown) state variables. Moreover, the investor's horizon is shown explicitly to play a crucial role in the optimal strategy design, in sharp contrast with the traditional decomposition.
Author: Marcos Escobar
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Book Description
The problem of optimal wealth allocation is solved under the assumptions that interest rates are stochastic and stock returns are predictable with observed and unobserved factors. The stock risk premium is taken to be an affine function of the predictive variables and the stock return volatility is assumed to depend on the observed factor. The latent factor is estimated based on the observations. It is shown that the stock return predictability can significantly impact the optimal bond portfolio. The welfare loss from ignoring learning can be considerable.
Author: Holger Kraft
Publisher: Springer Science & Business Media
ISBN: 3642170412
Category : Business & Economics
Languages : en
Pages : 178
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Book Description
This thesis summarizes most of my recent research in the field of portfolio optimization. The main topics which I have addressed are portfolio problems with stochastic interest rates and portfolio problems with defaultable assets. The starting point for my research was the paper "A stochastic control ap proach to portfolio problems with stochastic interest rates" (jointly with Ralf Korn), in which we solved portfolio problems given a Vasicek term structure of the short rate. Having considered the Vasicek model, it was obvious that I should analyze portfolio problems where the interest rate dynamics are gov erned by other common short rate models. The relevant results are presented in Chapter 2. The second main issue concerns portfolio problems with default able assets modeled in a firm value framework. Since the assets of a firm then correspond to contingent claims on firm value, I searched for a way to easily deal with such claims in portfolio problems. For this reason, I developed the elasticity approach to portfolio optimization which is presented in Chapter 3. However, this way of tackling portfolio problems is not restricted to portfolio problems with default able assets only, but it provides a general framework allowing for a compact formulation of portfolio problems even if interest rates are stochastic.
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: Mads Kvist Pedersen
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Nicolas Chapados
Publisher: Springer Science & Business Media
ISBN: 1461405777
Category : Computers
Languages : en
Pages : 107
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Book Description
This brief offers a broad, yet concise, coverage of portfolio choice, containing both application-oriented and academic results, along with abundant pointers to the literature for further study. It cuts through many strands of the subject, presenting not only the classical results from financial economics but also approaches originating from information theory, machine learning and operations research. This compact treatment of the topic will be valuable to students entering the field, as well as practitioners looking for a broad coverage of the topic.
Author: W. T. Ziemba
Publisher: Academic Press
ISBN: 1483273997
Category : Business & Economics
Languages : en
Pages : 736
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Book Description
Stochastic Optimization Models in Finance focuses on the applications of stochastic optimization models in finance, with emphasis on results and methods that can and have been utilized in the analysis of real financial problems. The discussions are organized around five themes: mathematical tools; qualitative economic results; static portfolio selection models; dynamic models that are reducible to static models; and dynamic models. This volume consists of five parts and begins with an overview of expected utility theory, followed by an analysis of convexity and the Kuhn-Tucker conditions. The reader is then introduced to dynamic programming; stochastic dominance; and measures of risk aversion. Subsequent chapters deal with separation theorems; existence and diversification of optimal portfolio policies; effects of taxes on risk taking; and two-period consumption models and portfolio revision. The book also describes models of optimal capital accumulation and portfolio selection. This monograph will be of value to mathematicians and economists as well as to those interested in economic theory and mathematical economics.
Author: Jonathan Kofod
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Author: John Y. Campbell
Publisher:
ISBN:
Category :
Languages : en
Pages : 75
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Book Description
This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work, and on the tradeoff between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor (SDF) that prices all assets in the economy. The behavior of the term structure of real interest rates restricts the conditional mean of the SDF, while patterns of risk premia restrict its conditional volatility and factor structure. Stylized facts about interest rates, aggregate stock prices, and cross-sectional patterns in stock returns have stimulated new research on optimal portfolio choice, intertemporal equilibrium models, and behavioral finance.
