Partial information about contagion risk, self-exciting processes and portfolio optimization
This paper compares two classes of models that allow for additional channels of correlation between asset returns: regime switching models with jumps and models with contagious jumps. Both classes of models involve a hidden Markov chain that captures good and bad economic states. The distinctive feature of a model with contagious jumps is that large negative returns and unobservable transitions of the economy into a bad state can occur simultaneously. We show that in this framework the filtered loss intensities have dynamics similar to self-exciting processes. Besides, we study the impact of unobservable contagious jumps on optimal portfolio strategies and filtering.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: Theodor-W.-Adorno-Platz 3, D-60323 Frankfurt am Main|
Phone: +49 (0)69 798-30080
Fax: +49 (0)69 798-30077
Web page: http://safe-frankfurt.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kole, Erik & Koedijk, Kees & Verbeek, Marno, 2006. "Portfolio implications of systemic crises," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2347-2369, August.
- Mark H. A. Davis & Sebastien Lleo, 2009. "Jump-Diffusion Risk-Sensitive Asset Management," Papers 0905.4740, arXiv.org, revised Mar 2010.
- Aase, Knut Kristian, 1984. "Optimum portfolio diversification in a general continuous-time model," Stochastic Processes and their Applications, Elsevier, vol. 18(1), pages 81-98, September.
When requesting a correction, please mention this item's handle: RePEc:zbw:safewp:28. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.