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Author: Donatien Hainaut
Publisher:
ISBN:
Category :
Languages : en
Pages : 19
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Book Description
This paper revisits the problem of the strategic asset allocation between stocks and bonds. The novelty of our approach is to model the influence of economic cycles on the marginal distributions of asset returns and their dependence structure by a single hidden Markov chain. After a brief review of selected statistical distributions (Student't and Weibull) and copulas (elliptic and Archimedian), we describe how the switching regime model is calibrated using two indices: the CAC 40 for stocks and the SGI Bond 10 years, for bonds. We then propose a dynamic investment policy based on the estimated probabilities of sojourn in each state of the Markov chain. Even though the Markov chain ruling the assets dynamics is hidden, a Bayesian procedure can be used to infer the probabilities of being in a certain state of the economy. The asset allocation can then adapted to provide the highest yield given the most likely state. Having calibrated and estimated the parameters of the model, the performance of static and dynamic strategies are compared by conducting Monte Carlo simulations. Our results show that dynamic strategies, which exploit the additional information relating the probable regime state, perform better than static policies with a limited risk and an acceptable number of reallocations.
Author: Donatien Hainaut
Publisher:
ISBN:
Category :
Languages : en
Pages : 19
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Book Description
This paper revisits the problem of the strategic asset allocation between stocks and bonds. The novelty of our approach is to model the influence of economic cycles on the marginal distributions of asset returns and their dependence structure by a single hidden Markov chain. After a brief review of selected statistical distributions (Student't and Weibull) and copulas (elliptic and Archimedian), we describe how the switching regime model is calibrated using two indices: the CAC 40 for stocks and the SGI Bond 10 years, for bonds. We then propose a dynamic investment policy based on the estimated probabilities of sojourn in each state of the Markov chain. Even though the Markov chain ruling the assets dynamics is hidden, a Bayesian procedure can be used to infer the probabilities of being in a certain state of the economy. The asset allocation can then adapted to provide the highest yield given the most likely state. Having calibrated and estimated the parameters of the model, the performance of static and dynamic strategies are compared by conducting Monte Carlo simulations. Our results show that dynamic strategies, which exploit the additional information relating the probable regime state, perform better than static policies with a limited risk and an acceptable number of reallocations.
Author: Jamie Alcock
Publisher: John Wiley & Sons
ISBN: 1119289017
Category : Business & Economics
Languages : en
Pages : 312
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Book Description
Avoid downturn vulnerability by managing correlation dependency Asymmetric Dependence in Finance examines the risks and benefits of asset correlation, and provides effective strategies for more profitable portfolio management. Beginning with a thorough explanation of the extent and nature of asymmetric dependence in the financial markets, this book delves into the practical measures fund managers and investors can implement to boost fund performance. From managing asymmetric dependence using Copulas, to mitigating asymmetric dependence risk in real estate, credit and CTA markets, the discussion presents a coherent survey of the state-of-the-art tools available for measuring and managing this difficult but critical issue. Many funds suffered significant losses during recent downturns, despite having a seemingly well-diversified portfolio. Empirical evidence shows that the relation between assets is much richer than previously thought, and correlation between returns is dependent on the state of the market; this book explains this asymmetric dependence and provides authoritative guidance on mitigating the risks. Examine an options-based approach to limiting your portfolio's downside risk Manage asymmetric dependence in larger portfolios and alternate asset classes Get up to speed on alternative portfolio performance management methods Improve fund performance by applying appropriate models and quantitative techniques Correlations between assets increase markedly during market downturns, leading to diversification failure at the very moment it is needed most. The 2008 Global Financial Crisis and the 2006 hedge-fund crisis provide vivid examples, and many investors still bear the scars of heavy losses from their well-managed, well-diversified portfolios. Asymmetric Dependence in Finance shows you what went wrong, and how it can be corrected and managed before the next big threat using the latest methods and models from leading research in quantitative finance.
Author: John Y. Campbell
Publisher: OUP Oxford
ISBN: 019160691X
Category : Business & Economics
Languages : en
Pages : 272
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Book Description
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.
Author: Brendan O. Bradley
Publisher:
ISBN:
Category : Asset allocation
Languages : en
Pages : 486
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Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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(Uncorrected OCR) Abstract of the thesis entitled OPTIMAL ASSET ALLOCATION PROBLEMS UNDER THE DISCRETE-TIME REGIME-SWITCHING MODEL submitted by Cheung, Ka Chun for the degree of Doctor of Philosophy at The University of Hong Kong in January 2005 Recently, academics and practitioners have started paying attention to using the Markov Regime-Switching process to model asset price dynamics. The Markov Regime-Switching model can capture the reality that the investment environment is changing over time and hence is non-stationary. Another merit of the model is that it can provide a reasonable degree of analytical tractability. In this thesis, the optimal behavior of an investor in a Markov regime-switching environment will be examined. The thesis studies the optimal dynamic asset allocation strategy, the optimal consumption strategy in the presence of default risk, and the optimal surrender strategy of an equity-linked investment product. By employing the concept of stochastic dominance and assuming that the transition matrix is stochastically monotone, where both the concept and assumption have natural and appealing financial interpretations, it was shown that the optimal behavior of the investor is consistent with our intuition. As default risk is an important subject in modern finance and actuarial science, this thesis also studies the optimal portfolio problem in which financial instruments are subject to dependent default risks. Sufficient condition to order the optimal allocations was obtained. The analysis demonstrates that in the optimal portfolio problem context, the dependency structure between the default risks is essential and cannot be ignored.
Author: Francesco Paolo Natale
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
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This paper proposes a method to overcome the classical drawbacks of the Monte Carlo methods for the asset allocation, namely resampling, deeply dependent upon the multinormal assumption. The proposed approach allows to set a barrier against joint extreme negative returns (tail-dependence) and extreme (negative) returns (univariate tail risk) not included in the multivariate normal distribution. The dangerous tail-dependence between asset returns is considered by using a copula based approach instead of the multinormal Monte Carlo simulation. Then the proposed model has been applied on a sample of eleven euro-denominated asset classes with historical inputs and the consequent asset weights have been tested on multivariate Student's t returns and on a set of out-of-the sample real returns. The results of this model provide evidence of a barrier against extreme negative returns occurring simultaneously. The proposed model is distribution-free and therefore it does not involve any a priori decision on the marginal distributions for asset returns.
Author: Massimo Guidolin
Publisher:
ISBN:
Category : Asset allocation
Languages : en
Pages : 0
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Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 69
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Author: Emmanuel Jurczenko
Publisher: John Wiley & Sons
ISBN: 1786305445
Category : Business & Economics
Languages : en
Pages : 460
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Book Description
This new edited volume consists of a collection of original articles written by leading financial economists and industry experts in the area of machine learning for asset management. The chapters introduce the reader to some of the latest research developments in the area of equity, multi-asset and factor investing. Each chapter deals with new methods for return and risk forecasting, stock selection, portfolio construction, performance attribution and transaction costs modeling. This volume will be of great help to portfolio managers, asset owners and consultants, as well as academics and students who want to improve their knowledge of machine learning in asset management.
Author: Alan O'Sullivan
Publisher:
ISBN:
Category : Business Theses
Languages : en
Pages : 0
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