Asymptotic dynamics and value-at-risk of large diversified portfolios in a jump-diffusion market
This paper studies the modelling of large diversified portfolios in a financial market with jump-diffusion risks. The portfolios considered include three categories: equal money-weighted portfolios, risk-minimizing portfolios and market indices. Reduced-form dynamics driven jointly by one Brownian motion and one Poisson process are derived for the asymptotics of such portfolios. We prove that derivatives written on a portfolio can be priced by treating the asymptotic dynamics as the underlying process if the number of assets in the portfolio is sufficiently large. Analytical and Monte Carlo value-at-risk can be computed for the portfolios based on their asymptotic dynamics.
Year of publication: |
2004
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Authors: | Guan, Lim Kian ; Xiaoqing, Liu ; Chong, Tsui Kai |
Published in: |
Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 4.2004, 2, p. 129-139
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Publisher: |
Taylor & Francis Journals |
Saved in:
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