Partial information about contagion risk, self-exciting processes and portfolio optimization : [Version 18 April 2013]

  • 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.

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Metadaten
Author:Nicole BrangerORCiDGND, Holger KraftGND, Christoph MeinerdingORCiDGND
URN:urn:nbn:de:hebis:30:3-315514
URL:http://ssrn.com/abstract=1633479
DOI:https://doi.org/10.2139/ssrn.1633479
Parent Title (German):SAFE working paper series ; No. 28
Series (Serial Number):SAFE working paper series (28)
Document Type:Working Paper
Language:English
Year of Completion:2013
Year of first Publication:2013
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2013/09/04
Tag:Asset Allocation; Contagion; Hidden State; Nonlinear Filtering; Self-exciting Processes
Issue:Version 18 April 2013
Page Number:42
First Page:1
Last Page:39
HeBIS-PPN:348850468
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht