portfolio choice with jumps: A closed-form solution

Yacine Aït-Sahalia; Julio Cacho-Diaz; T. R. Hurd

doi:10.1214/08-AAP552

portfolio choice with jumps: A closed-form solution

Yacine Aït-Sahalia, Julio Cacho-Diaz, T. R. Hurd

Research output: Contribution to journal › Article › peer-review

77 Scopus citations

Abstract

We analyze the consumption-portfolio selection problem of an investor facing both Brownian and jump risks. We bring new tools, in the form of orthogonal decompositions, to bear on the problem in order to determine the optimal portfolio in closed form. We show that the optimal policy is for the investor to focus on controlling his exposure to the jump risk, while exploiting differences in the Brownian risk of the asset returns that lies in the orthogonal space.

Original language	English (US)
Pages (from-to)	556-584
Number of pages	29
Journal	Annals of Applied Probability
Volume	19
Issue number	2
DOIs	https://doi.org/10.1214/08-AAP552
State	Published - Apr 2009

All Science Journal Classification (ASJC) codes

Statistics and Probability
Statistics, Probability and Uncertainty

Keywords

Closed-form solution.
Factor models
Jumps
Merton problem
Optimal portfolio

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10.1214/08-AAP552

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abstract = "We analyze the consumption-portfolio selection problem of an investor facing both Brownian and jump risks. We bring new tools, in the form of orthogonal decompositions, to bear on the problem in order to determine the optimal portfolio in closed form. We show that the optimal policy is for the investor to focus on controlling his exposure to the jump risk, while exploiting differences in the Brownian risk of the asset returns that lies in the orthogonal space.",

keywords = "Closed-form solution., Factor models, Jumps, Merton problem, Optimal portfolio",

author = "Yacine A{\"i}t-Sahalia and Julio Cacho-Diaz and Hurd, {T. R.}",

note = "Funding Information: This work has been supported by Hangzhou Key Laboratory for IoT Technology & Application.",

year = "2009",

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volume = "19",

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T1 - portfolio choice with jumps

T2 - A closed-form solution

AU - Aït-Sahalia, Yacine

AU - Cacho-Diaz, Julio

AU - Hurd, T. R.

N1 - Funding Information: This work has been supported by Hangzhou Key Laboratory for IoT Technology & Application.

PY - 2009/4

Y1 - 2009/4

N2 - We analyze the consumption-portfolio selection problem of an investor facing both Brownian and jump risks. We bring new tools, in the form of orthogonal decompositions, to bear on the problem in order to determine the optimal portfolio in closed form. We show that the optimal policy is for the investor to focus on controlling his exposure to the jump risk, while exploiting differences in the Brownian risk of the asset returns that lies in the orthogonal space.

AB - We analyze the consumption-portfolio selection problem of an investor facing both Brownian and jump risks. We bring new tools, in the form of orthogonal decompositions, to bear on the problem in order to determine the optimal portfolio in closed form. We show that the optimal policy is for the investor to focus on controlling his exposure to the jump risk, while exploiting differences in the Brownian risk of the asset returns that lies in the orthogonal space.

KW - Closed-form solution.

KW - Factor models

KW - Jumps

KW - Merton problem

KW - Optimal portfolio

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JO - Annals of Applied Probability

JF - Annals of Applied Probability

IS - 2

ER -

portfolio choice with jumps: A closed-form solution

Abstract

All Science Journal Classification (ASJC) codes

Keywords

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