Dynamic asset allocation under VaR constraint with stochastic interest rates

Dynamic asset allocation under VaR constraint with stochastic interest rates

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Article ID: iaor200973430
Volume: 172
Issue: 1
Start Page Number: 97
End Page Number: 117
Publication Date: Nov 2009
Journal: Annals of Operations Research
Authors:
Abstract:

This paper addresses the problem of dynamic asset allocation under a bounded shortfall risk in a market composed of three assets: cash, stocks and a zero coupon bond. The dynamics of the instantaneous short rates is driven by a Hull and White model. In this setting, we determine and compare optimal investment strategies maximizing the Constant Relative Risk Aversion (CRRA) utility of terminal wealth with and without value at risk constraint.

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