Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Portfolio Selection in Stochastic Environments

Portfolio Selection in Stochastic Environments In this article, I explicitly solve dynamic portfolio choice problems, up to the solution of an ordinary differential equation (ODE), when the asset returns are quadratic and the agent has a constant relative risk aversion (CRRA) coefficient. My solution includes as special cases many existing explicit solutions of dynamic portfolio choice problems. I also present three applications that are not in the literature. Application 1 is the bond portfolio selection problem when bond returns are described by “quadratic term structure models.” Application 2 is the stock portfolio selection problem when stock return volatility is stochastic as in Heston model. Application 3 is a bond and stock portfolio selection problem when the interest rate is stochastic and stock returns display stochastic volatility. (JEL G11) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Portfolio Selection in Stochastic Environments

The Review of Financial Studies , Volume 20 (1) – Jan 15, 2007

Loading next page...
 
/lp/oxford-university-press/portfolio-selection-in-stochastic-environments-Wjv9GFgTtb

References (35)

Publisher
Oxford University Press
Copyright
© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/hhl001
Publisher site
See Article on Publisher Site

Abstract

In this article, I explicitly solve dynamic portfolio choice problems, up to the solution of an ordinary differential equation (ODE), when the asset returns are quadratic and the agent has a constant relative risk aversion (CRRA) coefficient. My solution includes as special cases many existing explicit solutions of dynamic portfolio choice problems. I also present three applications that are not in the literature. Application 1 is the bond portfolio selection problem when bond returns are described by “quadratic term structure models.” Application 2 is the stock portfolio selection problem when stock return volatility is stochastic as in Heston model. Application 3 is a bond and stock portfolio selection problem when the interest rate is stochastic and stock returns display stochastic volatility. (JEL G11)

Journal

The Review of Financial StudiesOxford University Press

Published: Jan 15, 2007

There are no references for this article.