PurposeThe purpose of this paper is to solve the optimal dynamic portfolio problem under the double-exponential jump diffusion (DEJD) distribution, which can allow the asset returns to jump asymmetrically.Design/methodology/approachThe authors solve the problem by solving the HJB equation. Meanwhile, in the presence of jump component in the asset returns, the investor may suffer a large loss due to high leveraged position, so the authors impose the short-sale and borrowing constraints when solving the optimization problem.FindingsThe authors provide sufficient conditions such that the optimal solution exists and show theoretically that the optimal risky asset weight is an increasing function of jump-up probability and average jump-up size and a decreasing function of average jump-down size.Research limitations/implicationsIn this study, the authors assume that the jump-up and jump-down intensities are constant. In the future, the authors will relax the assumption and allows the jump intensities to be time varying.Practical implicationsEmpirical studies based on Chinese Shanghai stock index data show that the jump distribution of Shanghai index returns is asymmetric, and the DEJD model can fit the data better than the log-normal jump-diffusion model. The numerical results are consistent with the theoretical prediction, and the authors find that the less risk-averse investor will suffer more economic cost if ignoring asymmetric jump distribution.Originality/valueThis study first examines how asymmetric jumps affect the investor’s portfolio allocation.
China Finance Review International – Emerald Publishing
Published: Nov 19, 2018
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.
All for just $49/month
Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly
Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.
Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera