Open Access. Powered by Scholars. Published by Universities.®

Business Commons

Open Access. Powered by Scholars. Published by Universities.®

Articles 1 - 2 of 2

Full-Text Articles in Business

Jumps And Dynamic Asset Allocation, Liuren Wu Apr 2000

Jumps And Dynamic Asset Allocation, Liuren Wu

CRIF Working Paper series

This paper provides a general framework for analyzing optimal dynamic asset allocation problems in economies with infrequent events and where the investment opportunities are stochastic and predictable. Analytical solutions are obtained, with which I do a thorough comparative study of the impacts of jumps on the dynamic decision. I also calibrate the model to the U.S. equity market and assess the quantitative impacts of jumps under a dynamic environment. I find that jump risk not only makes the investor's allocation more conservative overall but also makes her dynamic portfolio rebalancing less dramatic over time.


Predictable Changes In Yields And Forward Rates, David Backus, Silverio Foresi, Abon Mozumdar, Liuren Wu Mar 2000

Predictable Changes In Yields And Forward Rates, David Backus, Silverio Foresi, Abon Mozumdar, Liuren Wu

CRIF Working Paper series

We make two contributions to the study of interest rates. The first is to characterize their dynamics in a new way. We estimate forecasting relations based on one-period changes in forward rates, which are more easily compared than earlier work on yields to the stationary theory of bond pricing. The second is to approximate these dynamics and other salient features of interest rates with an affine model. We show that models with "negative" factors come closer to accounting for the properties of interest rates, including their dynamics, than multifactor Cox-Ingersoll-Ross models.