TY  - UNPD
A1  - Ascheberg, Marius
A1  - Branger, Nicole
A1  - Kraft, Holger
A1  - Seifried, Frank Thomas
T1  - When do jumps matter for portfolio optimization?
T2  - SAFE working paper series ; No. 16 [Version November 25, 2015]
N2  - We consider the continuous-time portfolio optimization problem of an investor with constant relative risk aversion who maximizes expected utility of terminal wealth. The risky asset follows a jump-diffusion model with a diffusion state variable. We propose an approximation method that replaces the jumps by a diffusion and solve the resulting problem analytically. Furthermore, we provide explicit bounds on the true optimal strategy and the relative wealth equivalent loss that do not rely on quantities known only in the true model. We apply our method to a calibrated affine model. Our findings are threefold: Jumps matter more, i.e. our approximation is less accurate, if (i) the expected jump size or (ii) the jump intensity is large. Fixing the average impact of jumps, we find that (iii) rare, but severe jumps matter more than frequent, but small jumps.
T3  - SAFE working paper - 16 [Version 2015] 
KW  - optimal investment
KW  - jumps
KW  - stochastic volatility
KW  - welfare loss
Y1  - 2015
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/39304
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-393042
UR  - http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2259630
PB  - SAFE
CY  - Frankfurt am Main
ER  -