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.

Download full text files

Export metadata

Additional Services

Share in Twitter Search Google Scholar
Author:Nicole BrangerORCiDGND, Holger KraftGND, Christoph MeinerdingORCiDGND
Parent Title (German):SAFE working paper series ; No. 28
Series (Serial Number):SAFE working paper series (28)
Document Type:Working Paper
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
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Licence (German):License LogoDeutsches Urheberrecht