Should Stochastic Volatility Matter To The Cost Constrained Investor

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Should Stochastic Volatility Matter to the Cost-Constrained Investor?

Author : Scott M. Weiner
Publisher :
ISBN 13 :
Total Pages : 18 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Should Stochastic Volatility Matter to the Cost-Constrained Investor? by : Scott M. Weiner

Download or read book Should Stochastic Volatility Matter to the Cost-Constrained Investor? written by Scott M. Weiner and published by . This book was released on 2003 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Significant strides have been made in the development of continuous-time portfolio optimization models since Merton (1969). Two independent advances have been the incorporation of transaction costs and time-varying volatility into the investor's optimization problem. Transaction costs generally inhibit investors from trading too often; they force the investor to choose between holding a suboptimal portfolio and reallocating the portfolio to the optimal allocation by incurring a fee. Several models, including Eastham and Hastings (1988) and Davis and Norman (1990), show that the investor can experience periods of passive investment (i.e., periods without transaction activity) as a result of transaction costs. Time-varying volatility, on the other hand, encourages trading activity, as it can result in an evolving optimal allocation of resources, as in Karatzas (1989). We examine the two-asset portfolio optimization problem when both elements are present. We show that the transaction cost framework in Korn (1998) can be extended to include a stochastic volatility process. We then specify a transaction cost model with stochastic volatility, based on Morton and Pliska (1995), and show that when the risk premium is linear in variance, the optimal strategy for the investor is independent of the level of volatility in the risky asset. We call this the Variance Invariance Principle.

The Journal of Computational Finance

Author :
Publisher :
ISBN 13 :
Total Pages : 1038 pages
Book Rating : 4.E/5 ( download)

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Book Synopsis The Journal of Computational Finance by :

Download or read book The Journal of Computational Finance written by and published by . This book was released on 2004 with total page 1038 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Mathematical Reviews

Author :
Publisher :
ISBN 13 :
Total Pages : 1084 pages
Book Rating : 4.3/5 (91 download)

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Book Synopsis Mathematical Reviews by :

Download or read book Mathematical Reviews written by and published by . This book was released on 2005 with total page 1084 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Does uncertainty matter? : a stochastic dynamic analysis of bankable emission permit trading for global climate change policy

Author : Fan Zhang
Publisher : World Bank Publications
ISBN 13 :
Total Pages : 53 pages
Book Rating : 4./5 ( download)

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Book Synopsis Does uncertainty matter? : a stochastic dynamic analysis of bankable emission permit trading for global climate change policy by : Fan Zhang

Download or read book Does uncertainty matter? : a stochastic dynamic analysis of bankable emission permit trading for global climate change policy written by Fan Zhang and published by World Bank Publications. This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Emission permit trading is a centerpiece of the Kyoto Protocol which allows participating nations to trade and bank greenhouse gas permits under the Framework Convention on Climate Change. When market conditions evolve stochastically, emission trading produces a dynamic problem, in which anticipation about the future economic environment affects current banking decisions. In this paper, the author explores the effect of increased uncertainty over future output prices and input costs on the temporal distribution of emissions. In a dynamic programming setting, a permit price is a convex function of stochastic prices of electricity and fuel. Increased uncertainty about future market conditions increases the expected permit price and causes a risk-neutral firm to reduce ex ante emissions so as to smooth out marginal abatement costs over time. The convexity results from the asymmetric impact of changes in counterfactual emissions on the change of marginal abatement costs. Empirical analysis corroborates the theoretical prediction. The author finds that a 1 percent increase in electricity price volatility measured by the annualized standard deviation of percentage price change is associated with an average decrease in the annual emission rate by 0.88 percent. Numerical simulation suggests that high uncertainty could induce substantially early abatements, as well as large compliance costs, therefore imposing a tradeoff between environmental benefits and economic efficiency. The author discusses policy implications for designing an effective and efficient global carbon market.

Optimal Investment with Transaction Costs and Stochastic Volatility Part II

Author : Maxim Bichuch
Publisher :
ISBN 13 :
Total Pages : 24 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Optimal Investment with Transaction Costs and Stochastic Volatility Part II by : Maxim Bichuch

Download or read book Optimal Investment with Transaction Costs and Stochastic Volatility Part II written by Maxim Bichuch and published by . This book was released on 2018 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this companion paper to “Optimal Investment with Transaction Costs and Stochastic Volatility Part I: Infinite Horizon”, "http://ssrn.com/abstract=2374150" http://ssrn.com/abstract=2374150, we give an accuracy proof for the finite time optimal investment and consumption problem under fast mean-reverting stochastic volatility of a joint asymptotic expansion in a time scale parameter and the small transaction cost. The supplemental appendix accompanies this paper is, available at "http://ssrn.com/abstract=3234374" http://ssrn.com/abstract=3234374, in which we prove the verification theorem that the value function is a viscosity solution of the HJB equation.

Indifference Pricing

Author : René Carmona
Publisher : Princeton University Press
ISBN 13 : 0691138834
Total Pages : 427 pages
Book Rating : 4.6/5 (911 download)

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Book Synopsis Indifference Pricing by : René Carmona

Download or read book Indifference Pricing written by René Carmona and published by Princeton University Press. This book was released on 2009-01-18 with total page 427 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is the first book about the emerging field of utility indifference pricing for valuing derivatives in incomplete markets. René Carmona brings together a who's who of leading experts in the field to provide the definitive introduction for students, scholars, and researchers. Until recently, financial mathematicians and engineers developed pricing and hedging procedures that assumed complete markets. But markets are generally incomplete, and it may be impossible to hedge against all sources of randomness. Indifference Pricing offers cutting-edge procedures developed under more realistic market assumptions. The book begins by introducing the concept of indifference pricing in the simplest possible models of discrete time and finite state spaces where duality theory can be exploited readily. It moves into a more technical discussion of utility indifference pricing for diffusion models, and then addresses problems of optimal design of derivatives by extending the indifference pricing paradigm beyond the realm of utility functions into the realm of dynamic risk measures. Focus then turns to the applications, including portfolio optimization, the pricing of defaultable securities, and weather and commodity derivatives. The book features original mathematical results and an extensive bibliography and indexes. In addition to the editor, the contributors are Pauline Barrieu, Tomasz R. Bielecki, Nicole El Karoui, Robert J. Elliott, Said Hamadène, Vicky Henderson, David Hobson, Aytac Ilhan, Monique Jeanblanc, Mattias Jonsson, Anis Matoussi, Marek Musiela, Ronnie Sircar, John van der Hoek, and Thaleia Zariphopoulou. The first book on utility indifference pricing Explains the fundamentals of indifference pricing, from simple models to the most technical ones Goes beyond utility functions to analyze optimal risk transfer and the theory of dynamic risk measures Covers non-Markovian and partially observed models and applications to portfolio optimization, defaultable securities, static and quadratic hedging, weather derivatives, and commodities Includes extensive bibliography and indexes Provides essential reading for PhD students, researchers, and professionals

Mathematics of Finance

Author : George Yin
Publisher : American Mathematical Soc.
ISBN 13 : 0821834126
Total Pages : 414 pages
Book Rating : 4.8/5 (218 download)

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Book Synopsis Mathematics of Finance by : George Yin

Download or read book Mathematics of Finance written by George Yin and published by American Mathematical Soc.. This book was released on 2004 with total page 414 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contains papers based on talks given at the first AMS-IMS-SIAM Joint Summer Research Conference on Mathematics of Finance held at Snowbird. This book includes such topics as modeling, estimation, optimization, control, and risk assessment and management. It is suitable for students interested in mathematical finance.

Handbook of Stochastic Analysis and Applications

Author : D. Kannan
Publisher : CRC Press
ISBN 13 : 1482294702
Total Pages : 808 pages
Book Rating : 4.4/5 (822 download)

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Book Synopsis Handbook of Stochastic Analysis and Applications by : D. Kannan

Download or read book Handbook of Stochastic Analysis and Applications written by D. Kannan and published by CRC Press. This book was released on 2001-10-23 with total page 808 pages. Available in PDF, EPUB and Kindle. Book excerpt: An introduction to general theories of stochastic processes and modern martingale theory. The volume focuses on consistency, stability and contractivity under geometric invariance in numerical analysis, and discusses problems related to implementation, simulation, variable step size algorithms, and random number generation.

The Efficient Market Theory and Evidence

Author : Andrew Ang
Publisher : Now Publishers Inc
ISBN 13 : 1601984685
Total Pages : 99 pages
Book Rating : 4.6/5 (19 download)

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Book Synopsis The Efficient Market Theory and Evidence by : Andrew Ang

Download or read book The Efficient Market Theory and Evidence written by Andrew Ang and published by Now Publishers Inc. This book was released on 2011 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis (EMH) asserts that, at all times, the price of a security reflects all available information about its fundamental value. The implication of the EMH for investors is that, to the extent that speculative trading is costly, speculation must be a loser's game. Hence, under the EMH, a passive strategy is bound eventually to beat a strategy that uses active management, where active management is characterized as trading that seeks to exploit mispriced assets relative to a risk-adjusted benchmark. The EMH has been refined over the past several decades to reflect the realism of the marketplace, including costly information, transactions costs, financing, agency costs, and other real-world frictions. The most recent expressions of the EMH thus allow a role for arbitrageurs in the market who may profit from their comparative advantages. These advantages may include specialized knowledge, lower trading costs, low management fees or agency costs, and a financing structure that allows the arbitrageur to undertake trades with long verification periods. The actions of these arbitrageurs cause liquid securities markets to be generally fairly efficient with respect to information, despite some notable anomalies.

Public Investment in Resource-Abundant Developing Countries

Author : Mr.Andrew Berg
Publisher : International Monetary Fund
ISBN 13 : 1475549822
Total Pages : 48 pages
Book Rating : 4.4/5 (755 download)

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Book Synopsis Public Investment in Resource-Abundant Developing Countries by : Mr.Andrew Berg

Download or read book Public Investment in Resource-Abundant Developing Countries written by Mr.Andrew Berg and published by International Monetary Fund. This book was released on 2012-11-15 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Natural resource revenues provide a valuable source to finance public investment in developing countries, which frequently face borrowing constraints and tax revenue mobilization problems. This paper develops a dynamic stochastic small open economy model to analyze the macroeconomic effects of investing natural resource revenues, making explicit the role of pervasive features in these countries including public investment inefficiency, absorptive capacity constraints, Dutch disease, and financing needs to sustain capital. Revenue exhaustibility raises medium-term issues of how to sustain capital built during a windfall, while revenue volatility raises short-term concerns about macroeconomic instability. Using the model, country applications show how combining public investment with a resource fund---a sustainable investing approach---can help address the macroeconomic problems associated with both exhaustibility and volatility. The applications also demonstrate how the model can be used to determine the appropriate magnitude of the investment scaling-up (accounting for the financing needs to sustain capital) and the adequate size of a stabilization fund (buffer).

Macroeconomics and the Japanese Economy

Author : Hiroshi Yoshikawa
Publisher : Oxford University Press, USA
ISBN 13 : 9780198233268
Total Pages : 502 pages
Book Rating : 4.2/5 (332 download)

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Book Synopsis Macroeconomics and the Japanese Economy by : Hiroshi Yoshikawa

Download or read book Macroeconomics and the Japanese Economy written by Hiroshi Yoshikawa and published by Oxford University Press, USA. This book was released on 1995 with total page 502 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work proposes a new approach to macroeconomics which draws upon the experience of the Japanese economy. The approach is similar to the Old Keynesian view: it rejects the Walrasian approach, and singles out real demand as the fundamental determinant of output in the economy as a whole. However, by maintaining that real demand constraints are important not only in the short-run, but in the long-run as well, it goes beyond what is normally understood as the Keynesian approach. It is also very different from the New Keynesian Economics; in particular, it regards the rigidity of nominal wages/prices as of secondary importance. The work is extensively illustrated by almost 200 figures and tables of data.

Stochastic Game Strategies and their Applications

Author : Bor-Sen Chen
Publisher : CRC Press
ISBN 13 : 0429780508
Total Pages : 333 pages
Book Rating : 4.4/5 (297 download)

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Book Synopsis Stochastic Game Strategies and their Applications by : Bor-Sen Chen

Download or read book Stochastic Game Strategies and their Applications written by Bor-Sen Chen and published by CRC Press. This book was released on 2019-07-31 with total page 333 pages. Available in PDF, EPUB and Kindle. Book excerpt: Game theory involves multi-person decision making and differential dynamic game theory has been widely applied to n-person decision making problems, which are stimulated by a vast number of applications. This book addresses the gap to discuss general stochastic n-person noncooperative and cooperative game theory with wide applications to control systems, signal processing systems, communication systems, managements, financial systems, and biological systems. H∞ game strategy, n-person cooperative and noncooperative game strategy are discussed for linear and nonlinear stochastic systems along with some computational algorithms developed to efficiently solve these game strategies.

Derivatives in Financial Markets with Stochastic Volatility

Author : Jean-Pierre Fouque
Publisher : Cambridge University Press
ISBN 13 : 9780521791632
Total Pages : 222 pages
Book Rating : 4.7/5 (916 download)

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Book Synopsis Derivatives in Financial Markets with Stochastic Volatility by : Jean-Pierre Fouque

Download or read book Derivatives in Financial Markets with Stochastic Volatility written by Jean-Pierre Fouque and published by Cambridge University Press. This book was released on 2000-07-03 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book, first published in 2000, addresses pricing and hedging derivative securities in uncertain and changing market volatility.

Strategic Asset Allocation

Author : John Y. Campbell
Publisher : OUP Oxford
ISBN 13 : 019160691X
Total Pages : 272 pages
Book Rating : 4.1/5 (916 download)

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Book Synopsis Strategic Asset Allocation by : John Y. Campbell

Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Investing Volatile Oil Revenues in Capital-Scarce Economies

Author : Christine J. Richmond
Publisher : International Monetary Fund
ISBN 13 : 1484313577
Total Pages : 34 pages
Book Rating : 4.4/5 (843 download)

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Book Synopsis Investing Volatile Oil Revenues in Capital-Scarce Economies by : Christine J. Richmond

Download or read book Investing Volatile Oil Revenues in Capital-Scarce Economies written by Christine J. Richmond and published by International Monetary Fund. This book was released on 2013-06-12 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Natural resource revenues are an increasingly important financing source for public investment in many developing economies. Investing volatile resource revenues, however, may subject an economy to macroeconomic instability. This paper applies to Angola the fiscal framework developed in Berg et al. (forthcoming) that incorporates investment inefficiency and absorptive capacity constraints, often encountered in developing countries. The sustainable investing approach, which combines a stable fiscal regime with external savings, can convert resource wealth to development gains while maintaining economic stability. Stochastic simulations demonstrate how the framework can be used to inform allocations between capital spending and external savings when facing uncertain oil revenues. An overly aggressive investment scaling-up path could result in insufficient fiscal buffers when faced with negative oil price shocks. Consequently, investment progress can be interrupted, driving up the capital depreciation rate, undermining economic stability, and lowering the growth benefits of public investment.

Understanding Risk

Author : David Murphy
Publisher : CRC Press
ISBN 13 : 9781584888949
Total Pages : 472 pages
Book Rating : 4.8/5 (889 download)

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Book Synopsis Understanding Risk by : David Murphy

Download or read book Understanding Risk written by David Murphy and published by CRC Press. This book was released on 2008-04-23 with total page 472 pages. Available in PDF, EPUB and Kindle. Book excerpt: Sound risk management often involves a combination of both mathematical and practical aspects. Taking this into account, Understanding Risk: The Theory and Practice of Financial Risk Management explains how to understand financial risk and how the severity and frequency of losses can be controlled. It combines a quantitative approach with a

Stochastic Programming

Author : Gerd Infanger
Publisher : Springer Science & Business Media
ISBN 13 : 1441916423
Total Pages : 373 pages
Book Rating : 4.4/5 (419 download)

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Book Synopsis Stochastic Programming by : Gerd Infanger

Download or read book Stochastic Programming written by Gerd Infanger and published by Springer Science & Business Media. This book was released on 2010-11-10 with total page 373 pages. Available in PDF, EPUB and Kindle. Book excerpt: From the Preface... The preparation of this book started in 2004, when George B. Dantzig and I, following a long-standing invitation by Fred Hillier to contribute a volume to his International Series in Operations Research and Management Science, decided finally to go ahead with editing a volume on stochastic programming. The field of stochastic programming (also referred to as optimization under uncertainty or planning under uncertainty) had advanced significantly in the last two decades, both theoretically and in practice. George Dantzig and I felt that it would be valuable to showcase some of these advances and to present what one might call the state-of- the-art of the field to a broader audience. We invited researchers whom we considered to be leading experts in various specialties of the field, including a few representatives of promising developments in the making, to write a chapter for the volume. Unfortunately, to the great loss of all of us, George Dantzig passed away on May 13, 2005. Encouraged by many colleagues, I decided to continue with the book and edit it as a volume dedicated to George Dantzig. Management Science published in 2005 a special volume featuring the “Ten most Influential Papers of the first 50 Years of Management Science.” George Dantzig’s original 1955 stochastic programming paper, “Linear Programming under Uncertainty,” was featured among these ten. Hearing about this, George Dantzig suggested that his 1955 paper be the first chapter of this book. The vision expressed in that paper gives an important scientific and historical perspective to the book. Gerd Infanger