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A Frequency Domain Methodology for Time Series Modelling

In: Interest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds

Author

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  • Hens Steehouwer

Abstract

Determining an optimal Strategic Asset Allocation (SAA) in general, and for Central Banks and Sovereign Wealth Managers in particular, is essentially a decision-making problem under uncertainty. How well or badly a selected SAA will perform in terms of the objectives and constraints of the stakeholders will depend on the future evolution of economic and financial variables such as interest rates, asset returns and inflation rates. Uncertainty about the future evolution of these variables is traditionally modelled by means of (econometric) time series models. Campbell and Viceira (2002) provide an example of this approach. They estimate Vector AutoRegressive (VAR) models on historical time series and derive optimal investment portfolios from the statistical behaviour of the asset classes on various horizons as implied by the estimated VAR model.

Suggested Citation

  • Hens Steehouwer, 2010. "A Frequency Domain Methodology for Time Series Modelling," Palgrave Macmillan Books, in: Arjan B. Berkelaar & Joachim Coche & Ken Nyholm (ed.), Interest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds, chapter 15, pages 280-324, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-25129-8_15
    DOI: 10.1057/9780230251298_15
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