Jumps and Dynamic Asset Allocation

Jumps and Dynamic Asset Allocation This paper analyzes the optimal dynamic asset allocation problem in economies with infrequent events and where the investment opportunities are stochastic and predictable. Analytical approximations are obtained, with which a thorough comparative study is performed on the impacts of jumps upon the dynamic decision. The model is then calibrated to the U.S. equity market. The comparative analysis and the calibration exercise both show that jump risk not only makes the investor's allocation more conservative overall but also makes her dynamic portfolio rebalancing less dramatic over time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Jumps and Dynamic Asset Allocation

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1023699711805
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes the optimal dynamic asset allocation problem in economies with infrequent events and where the investment opportunities are stochastic and predictable. Analytical approximations are obtained, with which a thorough comparative study is performed on the impacts of jumps upon the dynamic decision. The model is then calibrated to the U.S. equity market. The comparative analysis and the calibration exercise both show that jump risk not only makes the investor's allocation more conservative overall but also makes her dynamic portfolio rebalancing less dramatic over time.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 17, 2004

References

  • Transaction Costs and Predictability: Some Utility Cost Calculations
    Balduzzi, P.; Lynch, A.
  • Strategic Asset Allocation
    Brennan, M. J.; Schwartz, E. S.; Lagnado, R.
  • Who Should Buy Long Term Bonds?
    Campell, J. Y.; Viceira, L. M.

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