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International Portfolio Choice Under Multi Factor Stochastic Volatility
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Book Synopsis International Portfolio Choice Under Multi-Factor Stochastic Volatility by : Marcos Escobar
Download or read book International Portfolio Choice Under Multi-Factor Stochastic Volatility written by Marcos Escobar and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model of international portfolio choice in complete and incomplete markets with stochastic covariance between financial asset returns and exchange rates. The optimal investment strategies are derived in closed form. We estimate the model parameters and illustrate the optimal investment based on two stock indices, S &P500 and DAX using the USD-EUR exchange rate. We analyse the welfare losses due to various suboptimal investment strategies, in particular we find that investors who invest myopically in complete markets or ignore derivative assets can incur substantial welfare losses. Furthermore, we find strong evidence that the welfare benefits from international diversification are significant. It is also shown that the model satisfies several stylized facts well known in the literature for the equity market.
Book Synopsis Optimal Investment Under Multi-Factor Stochastic Volatility by : Marcos Escobar
Download or read book Optimal Investment Under Multi-Factor Stochastic Volatility written by Marcos Escobar and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider a model for multivariate intertemporal portfolio choice in complete and incomplete markets with multi-factor stochastic covariance matrix of asset returns. The optimal investment strategies are derived in closed form. We estimate the model parameters and illustrate the optimal investment based on two stock indices: S&P500 and DAX. It is also shown that the model satisfies several stylized facts well known in the literature. We analyse the welfare losses due to suboptimal investment strategies and we find that the investors who invest myopically/ignore derivative assets/model volatility by one factor and ignore stochastic covariance between asset returns can incur significant welfare losses.
Book Synopsis Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets by : George Chacko
Download or read book Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets written by George Chacko and published by . This book was released on 2005 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Systemic Risk and International Portfolio Choice by : Sanjiv Ranjan Das
Download or read book Systemic Risk and International Portfolio Choice written by Sanjiv Ranjan Das and published by . This book was released on 2002 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Pricing and Portfolio Choice Theory by : Kerry Back
Download or read book Asset Pricing and Portfolio Choice Theory written by Kerry Back and published by Oxford University Press. This book was released on 2017 with total page 745 pages. Available in PDF, EPUB and Kindle. Book excerpt: Today all would agree that Mexico and the United States have never been closer--that the fates of the two republics are intertwined. Mexico has become an intimate part of life in almost every community in the United States, through immigration, imported produce, business ties, or illegal drugs. It is less a neighbor than a sibling; no matter what our differences, it is intricately a part of our existence. In the fully updated second edition of Mexico: What Everyone Needs to Know(R), Roderic Ai Camp gives readers the most essential information about our sister republic to the south. Camp organizes chapters around major themes--security and violence, economic development, foreign relations, the colonial heritage, and more. He asks questions that take us beyond the headlines: Why does Mexico have so much drug violence? What was the impact of the North American Free Trade Agreement? How democratic is Mexico? Who were Benito Juarez and Pancho Villa? What is the PRI (the Institutional Revolutionary Party)? The answers are sometimes surprising. Despite ratification of NAFTA, for example, Mexico has fallen behind Brazil and Chile in economic growth and rates of poverty. Camp explains that lack of labor flexibility, along with low levels of transparency and high levels of corruption, make Mexico less competitive than some other Latin American countries. The drug trade, of course, enhances corruption and feeds on poverty; approximately 450,000 Mexicans now work in this sector. Brisk, clear, and informed, Mexico: What Everyone Needs To Know(R) offers a valuable primer for anyone interested in the past, present, and future of our neighbor to the South. Links to video interviews with prominent Mexicans appear throughout the text. The videos can be accessed at through The Oxford Research Encyclopedia of Latin American History at http: //latinamericanhistory.oxfordre.com/page/videos/
Book Synopsis Robust Portfolio Choice with Derivatives Trading Under Stochastic Volatility by : Marcos Escobar
Download or read book Robust Portfolio Choice with Derivatives Trading Under Stochastic Volatility written by Marcos Escobar and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The problem of optimal portfolio choice is solved, in closed form, for an ambiguity averse investor who has access to stock and derivatives markets. The investor can have different levels of uncertainty about models for stock return and its stochastic volatility. Although both types of ambiguity considerably impact the optimal portfolio, we show that stock return ambiguity is more significant for stock allocation whereas volatility uncertainty has larger influence on derivatives trading. As expected, investors with no access to derivatives would not have additional losses from ignoring volatility uncertainty. Access to derivatives market substantially improves portfolio performance and increases welfare loss from neglecting either type of ambiguity. Interestingly, the loss from ignoring ambiguity could be as much as the loss from not trading the derivatives.
Book Synopsis Optimal Portfolio Selection with Consumption Under Stochastic Volatility by : 葛蕾
Download or read book Optimal Portfolio Selection with Consumption Under Stochastic Volatility written by 葛蕾 and published by . This book was released on 2017 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Portfolio Optimization Under Multiscale Stochastic Volatility by : Keqin Gong
Download or read book Portfolio Optimization Under Multiscale Stochastic Volatility written by Keqin Gong and published by . This book was released on 2013 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis, the classical Merton problem, a portfolio selection problem, is extended using multiscale volatility model which assumes that volatility of stock price depends on a fast scale process and a slow scale process. The Dynamic Programming Principle is used to establish the Hamilton-Jacobi-Bellman equation. An asymptotic method based on two small parameters from two scale factors, is applied in solving the equation to obtain an approximation of optimal trading strategy and value function, which is the expectation of utility of wealth in future. We also prove that when these two parameters are small, the error of our approximation of value function is small. Furthermore, we consider the counterparty risk in the portfolio selection problem, which means stock price has a jump at the default time and the stock is still tradable after default happens. In this scenario, an approximation of value function and optimal trading strategy is also derived and error of the approximation is estimated. Finally we use finite difference method to solve the problem and show how multiscale volatility model and counterparty default affect the results.
Book Synopsis Frontiers in Quantitative Finance by : Rama Cont
Download or read book Frontiers in Quantitative Finance written by Rama Cont and published by John Wiley & Sons. This book was released on 2009-03-09 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Petit D'euner de la Finance–which author Rama Cont has been co-organizing in Paris since 1998–is a well-known quantitative finance seminar that has progressively become a platform for the exchange of ideas between the academic and practitioner communities in quantitative finance. Frontiers in Quantitative Finance is a selection of recent presentations in the Petit D'euner de la Finance. In this book, leading quants and academic researchers cover the most important emerging issues in quantitative finance and focus on portfolio credit risk and volatility modeling.
Book Synopsis The Portfolio Choice Dilemma Under Stochastic Correlation by : Ryan Duffy
Download or read book The Portfolio Choice Dilemma Under Stochastic Correlation written by Ryan Duffy and published by . This book was released on 2007 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Return Volatility and International Portfolio Choice by : Nicolas Coeurdacier
Download or read book Return Volatility and International Portfolio Choice written by Nicolas Coeurdacier and published by . This book was released on 2007 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite the liberalization of international capital flows during the last decades, typical investors continue to hold most of their wealth in domestic assets. International RBC models can explain that 'portfolio home bias', if consumption home bias is incorporated, i.e. the fact that the bulk of consumption consists of locally produced goods (Obstfeld (2006)). However RBC models fail to explain the high volatility of equity returns and real exchange rates, and predict excessive cross-country risk sharing. This paper develops a model that simultaneously generates realistic portfolio holdings and return volatilities, and imperfect risk pooling. In the structure here, there are supply shocks, aggregate demand shocks (variations in government purchases, taste shocks), and exogenous shocks to equity risk premia. There is trade in domestic and foreign stocks and bonds. Demand shocks and risk premium shocks generate realistic return volatility, and create a strong bias towards holding local equity. Intuitively, a country-specific demand increase raises the relative price of the locally produced good, if there is consumption home bias, and it thus raises the relative return on local equity; local equity thus has a high return, in states of the world in which the household wishes to consume a lot. By biasing their portfolios toward local equity, countries can also insulate their net foreign assets and consumption spending, from exogenous risk premium shocks. When taste shocks follow random walks, there are sunspot equilibria characterized by sizable departures from full risk sharing.
Book Synopsis Robust Portfolio Choice and Consumption with Derivative Trading Under Stochastic Volatility and Jumps by : Pengyu Wei
Download or read book Robust Portfolio Choice and Consumption with Derivative Trading Under Stochastic Volatility and Jumps written by Pengyu Wei and published by . This book was released on 2018 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the optimal consumption and portfolio choice problem for an ambiguity averse investor who has access to the stock and derivatives markets with recursive preferences. The stock process follows a stochastic volatility jump-diffusion model and the investor can have different levels of ambiguity about diffusion risks and the jump risk, respectively. We obtain an analytical solution which is exact when the investor has unit elasticity of intertemporal substitution of consumption, and approximate otherwise. We find that optimal exposures to diffusion risks and to the jump risk are significantly affected by the ambiguity aversion about the corresponding risk factors in the complete market. However, the optimal stock investment is insensitive to the ambiguity aversion about the jump risk in the incomplete market. We also find that considering ambiguity aversion with respect to diffusion risks and participating in the derivatives markets are essential to reduce the potential welfare loss, while the impact of ignoring the jump ambiguity is negligible.
Book Synopsis Correlation Risk and International Portfolio Choice by : Nicole Branger
Download or read book Correlation Risk and International Portfolio Choice written by Nicole Branger and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the optimal portfolio choice of international investors when variances and correlations are stochastic. We assume that the returns from the perspective of the domestic investor are driven by a Wishart Affine Stochastic Correlation (WASC) model. We show that this also holds from the perspective of the foreign investor and give the relations between the variance-covariance matrices and the parameters of its dynamics in both currencies. Stochastic second moments have an impact on risk and returns that characterize the domestic and the foreign investment opportunity sets. Optimal portfolios and hedging demands of international investors differ due to their dependence on exchange rate variances and correlations. The benefits from investing can be different for domestic and foreign investors, and can also react differently to changes in second moments. These findings hold both in complete and incomplete markets.
Book Synopsis Characteristic-based Mean-variance Portfolio Choice by : Erik Hjalmarsson
Download or read book Characteristic-based Mean-variance Portfolio Choice written by Erik Hjalmarsson and published by . This book was released on 2009 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study empirical mean-variance optimization when the portfolio weights are restricted to be direct functions of underlying stock characteristics such as value and momentum. The closed-form solution to the portfolio weights estimator shows that the portfolio problem in this case reduces to a mean-variance analysis of assets with returns given by single-characteristic strategies (e.g., momentum or value). In an empirical application to international stock return indexes, we show that the direct approach to estimating portfolio weights clearly beats a naive regression-based approach that models the conditional mean. However, a portfolio based on equal weights of the single-characteristic strategies performs about as well, and sometimes better, than the direct estimation approach, highlighting again the difficulties in beating the equal-weighted case in mean-variance analysis. The empirical results also highlight the potential for "stock-picking" in international indexes, using characteristics such as value and momentum, with the characteristic-based portfolios obtaining Sharpe ratios approximately three times larger than the world market.
Book Synopsis International Portfolio Choice, Liquidity Constraints and the Home Equity Bias Puzzle by : Alexander George Michaelides
Download or read book International Portfolio Choice, Liquidity Constraints and the Home Equity Bias Puzzle written by Alexander George Michaelides and published by . This book was released on 2001 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Handbook of Portfolio Construction by : John B. Guerard, Jr.
Download or read book Handbook of Portfolio Construction written by John B. Guerard, Jr. and published by Springer Science & Business Media. This book was released on 2009-12-12 with total page 796 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio construction is fundamental to the investment management process. In the 1950s, Harry Markowitz demonstrated the benefits of efficient diversification by formulating a mathematical program for generating the "efficient frontier" to summarize optimal trade-offs between expected return and risk. The Markowitz framework continues to be used as a basis for both practical portfolio construction and emerging research in financial economics. Such concepts as the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT), for example, provide the foundation for setting benchmarks, for predicting returns and risk, and for performance measurement. This volume showcases original essays by some of today’s most prominent academics and practitioners in the field on the contemporary application of Markowitz techniques. Covering a wide spectrum of topics, including portfolio selection, data mining tests, and multi-factor risk models, the book presents a comprehensive approach to portfolio construction tools, models, frameworks, and analyses, with both practical and theoretical implications.
Book Synopsis Essays on Portfolio Choice and Risk Management by : Yi-Chin Hsin
Download or read book Essays on Portfolio Choice and Risk Management written by Yi-Chin Hsin and published by . This book was released on 2016 with total page 87 pages. Available in PDF, EPUB and Kindle. Book excerpt: Globalization increases the access to financial markets and provides expanding opportunities for investors to diversify internationally. As suggested by the Modern Portfolio Theory (Markowiz, 1952), rational investors should use one of the following two strategies to achieve portfolio diversification: (1) Investing in asset classes thought to have low correlations or (2) increasing the sizes of their portfolios in multiple markets. In the early 1970s, diversification was referred to as the “free lunch” in investment. However, French and Poterba (1991) show that investors still tend to hold a disproportionate part of domestic equities in their portfolios. This phenomenon is called “the equity home bias,” which is still puzzling in the international finance literature. These essays investigate what drives individuals to hold inefficient portfolios and forgo the benefits of international diversification. The first chapter of this study explains the equity home bias among international portfolios by analyzing the relationship between the sizes of portfolio required and the investor’s perception about risk. A flexible three-parameter distribution developed by Hueng and Yau (2006) to model the measures of risk for stock returns is extended here. Conclusions reveal that there is a trade-off between the desirable reduction of variance and the undesirable increase of negative skewness of diversifying international portfolios. This trade-off relationship may give an explanation to the equity home bias phenomenon in reality. The second chapter further examines the same question from the correlation perspective. Through numerical analysis, this chapter presents the evolution of U.S. equity home bias in the context of dynamic correlations between developed and emerging markets. The results imply that the persistent high correlations between the developed European and North American markets induced a high U.S. home bias; while on the other hand, the developed Pacific Asian and emerging markets have been relatively less correlated with that of the North American market and has led to a lower U.S. home bias. As future correlations are steadily increasing, investors may seek newly open markets for diversification benefits in the present. Yet over the long run, the benefits of international diversification can be very few. The home bias in the future will be rationalized by the equilibrium correlations between international markets. The third chapter uses micro data to analyze the portfolio choices in risky assets over the working-age of the single individual and the retired segments that are exposed to health and medical expense risk. Single retirees respond to changes in medical expenses by altering their portfolio toward risky assets, while no evidence is found in the changes of single working people’s portfolios. This result is in contrast to theoretical prediction, which assumes that the elders tend to hold riskless assets.
