Dynamic Portfolio Choice in Multi-Asset Jump-Diffusion Models:Explicit Solutions and Their Applications
This paper studies the optimal portfolio selection problem in jump-diffusion models where there are potentially a large number assets and/or state variables.More specifically,we derive closed-form solutions for the optimal portfolio weights up to solving a set of ordinary differential equations(ODEs),which generalizes the results in Liu(2007)and Jin and Zhang(2012)by incorporating jumps in both stock returns and state variables.To examine the effects of jump on an investor”s behavior,we then apply our results to two examples.In the first application,we propose a particularly tractable self-exciting jump intensity process in a double-jump model and explicitly solve the optimal investments in variance swaps.In a calibration exercise,we show that an investor always takes a short-long-short strategy and suboptimal portfolio strategies of ignoring jumps in volatility can easily violate jump-induced constraints in the double-jump model and thus lead to a 100%economic cost.The second application revisits the bond/stock ratio puzzle in a jump-diffusion model,illustrating that unlike pure-diffusion models,the puzzle cannot be rationalized by the hedging demand assumption due to the presence of jumps in stock returns.
Optimal portfolio selection jump-diffusion models variance swap investments bond/stock ratio puzzle
Yi Hong Xing Jin
International Business School Suzhou,Xi”an Jiaotong-Liverpool University Warwick Business School,University of Warwick
国内会议
上海
英文
322-399
2016-07-16（万方平台首次上网日期，不代表论文的发表时间）