Dynamic Asset Allocation under Stochastic Volatility - Theory and Practice
نویسنده
چکیده
This study develops inter-temporal dynamic asset allocation with stochastic volatility (DAASV) models. The DAASV models integrate the stochastic volatility feature inherent in asset returns into the allocation procedure. By applying the DAASV, an investor can more efficiently diversify the unsystematic risks, so as to achieve better performance. We demonstrate that the DAASV models dominate the traditional meanvariance portfolio models by using Taiwan equity market empirical data. Finally, we show that under the consideration of trade-off between transaction costs and rebalancing timing, an optimal asset allocation rebalancing frequency can be derived.
منابع مشابه
An Extension of Some Results Due to Cox and Leland
We investigate an optimal portfolio allocation problem between a risky and a risk-free asset, as in [1]. They obtained explicit conditions for path-independence and optimality of allocation strategies when the price of the risky asset follows a geometric Brownian motion with constant asset characteristics. This paper analyzes and extends their results for dynamic investment strategies by allowi...
متن کاملModeling and asset allocation for financial markets based on a discrete time microstructure model
On the basis of the market microstructure theory and the continuous time stochastic volatilitystyle microstructure model, a discrete time stochastic volatility microstructure model with stateobservability is proposed for describing the dynamics of financial markets. From the discrete time microstructure model proposed, estimates of two immeasurable state variables representing the market excess...
متن کاملNumerical solution of the Hamilton-Jacobi-Bellman formulation for continuous time mean variance asset allocation under stochastic volatility
1 We present efficient partial differential equation (PDE) methods for continuous time mean2 variance portfolio allocation problems when the underlying risky asset follows a stochastic 3 volatility process. The standard formulation for mean variance optimal portfolio allocation 4 problems gives rise to a two-dimensional non-linear Hamilton-Jacobi-Bellman (HJB) PDE. We 5 use a wide stencil metho...
متن کاملOption pricing under the double stochastic volatility with double jump model
In this paper, we deal with the pricing of power options when the dynamics of the risky underling asset follows the double stochastic volatility with double jump model. We prove efficiency of our considered model by fast Fourier transform method, Monte Carlo simulation and numerical results using power call options i.e. Monte Carlo simulation and numerical results show that the fast Fourier tra...
متن کاملAsset Allocation with a High Dimensional Latent Factor Model
This paper investigates implications of both time-varying expected return and volatility on the asset allocation problem in a high dimensional setting. We propose a dynamic latent factor multivariate stochastic volatility (DFMSV) model that, for the first time, allows for both time-varying expected return and stochastic volatility for a large number of assets, and evaluate its economic signific...
متن کامل