Portfolio Selection in Stochastic Environments
Author | : |
Publisher | : |
Total Pages | : |
Release | : 2010 |
ISBN-10 | : OCLC:1290249847 |
ISBN-13 | : |
Rating | : 4/5 (47 Downloads) |
Book excerpt: In this article, I explicitly solve dynamic portfolio choice problems, up to the solution of an ordinary differential equation (ODE), when the asset returns are quadratic and the agent has a constant relative risk aversion (CRRA) coefficient. My solution includes as special cases many existing explicit solutions of dynamic portfolio choice problems. I also present three applications that are not in the literature. Application 1 is the bond portfolio selection problem when bond returns are described by quot;quadratic term structure models.quot; Application 2 is the stock portfolio selection problem when stock return volatility is stochastic as in Heston model. Application 3 is a bond and stock portfolio selection problem when the interest rate is stochastic and stock returns display stochastic volatility. (JEL G11).