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Article: Elasticity approach to asset allocation in discrete time

TitleElasticity approach to asset allocation in discrete time
Authors
Keywordsdefaultable security
discrete-time asset allocation
Elasticity approach
optimal alternative to delta hedge
Issue Date2012
PublisherIOS Press.
Citation
Risk And Decision Analysis, 2012, v. 3 n. 1-2, p. 139-146 How to Cite?
AbstractIn this paper, we apply the elasticity approach to optimal asset allocation problems in discrete-time setting. In particular, firstly, for a portfolio optimization problem, which targets to maximize the expected utility of the terminal wealth of a portfolio of an option, the underlying stock, and the risk-free bond, the elasticity approach can decompose this problem into a reduced optimization problem, consisting of only the stock and bond, and a pure delta neutral hedging problem. This decomposition provides a discrete-time version of the optimal alternative to the delta hedge, which was initially proposed in continuous time. Moreover, the general principle given by the pure delta neutral strategy is analyzed in our setting. Secondly, the same approach is applied to an optimal investment problem with defaultable securities, and show that this problem is essentially the same as the above mentioned reduced optimization problem. This work can be regarded as an extension of the elasticity approach in Kraft [Mathematical Methods of Operations Research 58(1) (2003), 159-182] to discrete-time models, and it shows that this approach can largely deduce the asset allocation problems in complete market. © 2012 - IOS Press and the authors. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/159900
ISSN
2015 SCImago Journal Rankings: 0.112
References

 

DC FieldValueLanguage
dc.contributor.authorFu, Jen_HK
dc.contributor.authorYang, Hen_HK
dc.date.accessioned2012-08-16T05:59:09Z-
dc.date.available2012-08-16T05:59:09Z-
dc.date.issued2012en_HK
dc.identifier.citationRisk And Decision Analysis, 2012, v. 3 n. 1-2, p. 139-146en_HK
dc.identifier.issn1569-7371en_HK
dc.identifier.urihttp://hdl.handle.net/10722/159900-
dc.description.abstractIn this paper, we apply the elasticity approach to optimal asset allocation problems in discrete-time setting. In particular, firstly, for a portfolio optimization problem, which targets to maximize the expected utility of the terminal wealth of a portfolio of an option, the underlying stock, and the risk-free bond, the elasticity approach can decompose this problem into a reduced optimization problem, consisting of only the stock and bond, and a pure delta neutral hedging problem. This decomposition provides a discrete-time version of the optimal alternative to the delta hedge, which was initially proposed in continuous time. Moreover, the general principle given by the pure delta neutral strategy is analyzed in our setting. Secondly, the same approach is applied to an optimal investment problem with defaultable securities, and show that this problem is essentially the same as the above mentioned reduced optimization problem. This work can be regarded as an extension of the elasticity approach in Kraft [Mathematical Methods of Operations Research 58(1) (2003), 159-182] to discrete-time models, and it shows that this approach can largely deduce the asset allocation problems in complete market. © 2012 - IOS Press and the authors. All rights reserved.en_HK
dc.languageengen_US
dc.publisherIOS Press.en_US
dc.relation.ispartofRisk and Decision Analysisen_HK
dc.subjectdefaultable securityen_HK
dc.subjectdiscrete-time asset allocationen_HK
dc.subjectElasticity approachen_HK
dc.subjectoptimal alternative to delta hedgeen_HK
dc.titleElasticity approach to asset allocation in discrete timeen_HK
dc.typeArticleen_HK
dc.identifier.emailYang, H: hlyang@hku.hken_HK
dc.identifier.authorityYang, H=rp00826en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.3233/RDA-2011-0053en_HK
dc.identifier.scopuseid_2-s2.0-84862926946en_HK
dc.identifier.hkuros202438en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-84862926946&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume3en_HK
dc.identifier.issue1-2en_HK
dc.identifier.spage139en_HK
dc.identifier.epage146en_HK
dc.identifier.scopusauthoridFu, J=55265066100en_HK
dc.identifier.scopusauthoridYang, H=7406559537en_HK

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