Risk management for an internationally diversified portfolio
In a simple framework where we have: (i) a stochastic domestic interest rate, (ii) a stochastic exchange rate, (iii) both a domestic and a foreign riskless asset, and (iv) both a domestic and a foreign risky asset, we explicitly compute the optimal asset allocation for an investor who wants to maximize the expected (CRRA) utility of his final wealth. This explicit solution allows us the widely investigate the behaviour of the optimal portfolio hedging component with respect to all the parameters in the model. In particular, we show a numerical simulation for investigating the hedging strategy against the exchange rate risk.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: Via S. Faustino 74/B, 25122 Brescia|
Web page: http://www.unibs.it/atp/page.1019.0.0.0.atp?node=224
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ubs:wpaper:ubs0404. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matteo Galizzi)
If references are entirely missing, you can add them using this form.