Skip to main content
×
×
Home

Asset Allocation with Regime-Switching: Discrete-Time Case

  • Ka Chun Cheung (a1) and Hailiang Yang (a1)
Abstract

In this paper, we study the optimal asset allocation problem under a discrete regime switching model. Under the short-selling and leveraging constraints, the existence and uniqueness of the optimal trading strategy are obtained. We also obtain some natural properties of the optimal strategy. In particular, we show that if there exists a stochastic dominance order relationship between the random returns at different regimes, then we can order the optimal proportions we should invest in such regimes.

    • Send article to Kindle

      To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      Asset Allocation with Regime-Switching: Discrete-Time Case
      Available formats
      ×
      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      Asset Allocation with Regime-Switching: Discrete-Time Case
      Available formats
      ×
      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      Asset Allocation with Regime-Switching: Discrete-Time Case
      Available formats
      ×
Copyright
References
Hide All
Buffington, J. and Elliott, R.J. (2001) American Options with Regime Switching, QMF Conference 2001, Sydney, Australia.
Cox, J.C. and Huang, C.F. (1989) Optimal consumption and Portfolio Policies when asset prices follow a diffusion process, Journal of Economic Theory, 49, 3383.
Di Masi, G.B., Kabanov, Y.M. and Runggaldier, W.J. (1994) Mean Variance Hedging of Options on Stocks with Markov Volatility, Theory of Probability and Applications, 39, 173181.
Grauer, R.R. and Hakansson, N.H. (1982) Higher return, lower risk: historical returns on long run actively managed portfolios of stocks bonds and bills: 1936-1978, Financial Analysts Journal, March-April.
Grauer, R.R. and Hakansson, N.H. (1985) Returns on levered, actively managed long run portfolios of stocks, bonds and bills: 1934-1983, Financial Analysts Journal, September-October.
Hardy, M.R. (2001) A Regime-Switching Model of Long-Term Stock Returns, North American Actuarial Journal, 5(2), 4153.
Markowitz, H. (1959) Portfolio Selection: Efficient Diversification of Investment, New York. John Wiley and Sons.
Merton, R.C. (1969) Lifetime portfolio selection under uncertainty: The continuous-time case, Review of Economics and Statistics, 51, 247257.
Pliska, S.R. (1986) A Stochastic Calculus Model of Continuous Trading: Optimal Portfolios, Math. Oper. Res., 11, 371382.
Rolski, T., Schmidli, H., Schmidt, V. and Teugels, J. (1999), Stochastic Processes for Insurance and Finance, John Wiley and Sons.
Samuelson, P.A. (1969) Lifetime Portfolio Selection by Dynamic Stochastic Programming, The Review of Economics and Statistics, 51, 239246.
Shaked, M. and Shanthikumar, J.G. (1994) Stochastic Orders and Their Applications, Academic Press.
Yin, G. and Zhou, X.Y. (2003) Markowitz’s mean-variance portfolio selection with regime switching: From discrete-time models to their continuous-time limits, IEEE Transactions on Automatic Control, To appear.
Zariphopoulou, T. (1992) Investment-consumption models with transactions costs and Markov-chain parameters, SIAM J. Control Optim., 30, 613636.
Zhang, Q. (2001) Stock trading: An optimal selling rule, SIAM J. Control Optim., 40, 6487.
Zhou, X.Y. and Yin, G. (2003) Markowitz mean-variance portfolio selection with regime switching: A continuous-time model, SIAM J. Control Optim., To appear.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

ASTIN Bulletin: The Journal of the IAA
  • ISSN: 0515-0361
  • EISSN: 1783-1350
  • URL: /core/journals/astin-bulletin-journal-of-the-iaa
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 141 *
Loading metrics...

Abstract views

Total abstract views: 157 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 22nd July 2018. This data will be updated every 24 hours.