Portfolio Choice with Jumps: A Closed-Form Solution

We analyze the consumption-portfolio selection problem of an investor facing both Brownian and jump risks. We bring new tools, in the form of orthogonal decompositions, to bear on the problem in order to determine the optimal portfolio in closed form. We show that the optimal policy is for the inves...

Ausführliche Beschreibung

Gespeichert in:

Bibliographische Detailangaben
Veröffentlicht in:	The Annals of applied probability 2009-04, Vol.19 (2), p.556-584
Hauptverfasser:	Aït-Sahalia, Yacine, Cacho-Diaz, Julio, Hurd, T. R.
Format:	Artikel
Sprache:	eng
Schlagworte:	60J75 62P05 93E20 closed-form solution Economic models Expected returns factor models Financial portfolios Investment policy Investment risk Investors jumps Mathematical vectors Merton problem Objective functions Optimal portfolio Optimal solutions Portfolio investments Probability Rates of return Risk aversion Risk exposure Utility functions
Online-Zugang:	Volltext
Tags:	Tag hinzufügen Keine Tags, Fügen Sie den ersten Tag hinzu!

Beschreibung
Zusammenfassung:	We analyze the consumption-portfolio selection problem of an investor facing both Brownian and jump risks. We bring new tools, in the form of orthogonal decompositions, to bear on the problem in order to determine the optimal portfolio in closed form. We show that the optimal policy is for the investor to focus on controlling his exposure to the jump risk, while exploiting differences in the Brownian risk of the asset returns that lies in the orthogonal space.
ISSN:	1050-5164 2168-8737
DOI:	10.1214/08-AAP552