Search Results - subject:"diffusion processes" - EconBiz

Risk-Sensitive Investment Management

Davis, Mark H A; Lleo, Sébastien - World Scientific Publishing Co. Pte. Ltd.

jump-diffusion processes which are crucial to model market crashes. With its emphasis on the interconnection between …

Persistent link: https://www.econbiz.de/10011156399

The Merton Problem

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

Robert Merton opened a new chapter in finance with his two papers (Merton, 1969; Merton, 1971), reprinted in his book (Merton, 1992), on dynamic asset allocation. Aside from taking a decisive step away from Markowitz-style single-period models, these papers made the key link with stochastic control...

Persistent link: https://www.econbiz.de/10011206329

Asset and Liability Management

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In this chapter, we consider the situation of an investor who manages a portfolio of assets partly funded by an external liability. This is the typical case for banks, insurance companies and hedge funds. Asset and liabilitymanagement (ALM) problems have generated a substantial literature and a...

Persistent link: https://www.econbiz.de/10011206390

Infinite Horizon Problems

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

The problem we have considered so far relates to the finite horizon criterion $$J_{RS}^\theta (t;\,x,\,h)\,: = \, - {1 \over \theta }\ln {\Bbb E}{e^{ - \theta F(t;\,x,\,h)}}$$. There is also a rich literature on risk-sensitive control problems set over an infinite horizon, including Bielecki and...

Persistent link: https://www.econbiz.de/10011206413

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

The objective of this chapter is to illustrate how some of the models developed in the first part of the book can be useful to address practical investment management questions. We consider four short cases. The first one explores the interest of including a factor X(t) compared to the...

Persistent link: https://www.econbiz.de/10011206423

Managing Against a Benchmark

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

The Oxford English Dictionary defines a benchmark, or more precisely a ‘bench-mark’, as ‘a surveyor's mark cut in some durable material, as a rock, wall, gate-pillar, face of a building, etc., to indicate the starting, closing, or any suitable intermediate point in a line of levels for the...

Persistent link: https://www.econbiz.de/10011206508

Asset and Liability Management: Jump-Diffusion Case

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

The following sections are included:IntroductionFinancial Market, Investment Portfolio and LiabilityFormulation of the Asset and Liability Management ProblemDynamic Programming and the Value FunctionSolving the ALM Problem Under Affine Drift AssumptionsSolving the ALM Problem Under Standard...

Persistent link: https://www.econbiz.de/10011206547

Fund Separation and Fractional Kelly Strategies

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In the diffusions setting introduced in Part I, investment management models have a significant benefit: they generate an investment strategy in closed form. This closed form strategy can be transformed, via a fund separation theorem or a fractional Kelly strategy, into a practical recipe for...

Persistent link: https://www.econbiz.de/10011206626

Investment Constraints

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In the investment models we have considered so far, the fund manager could set the investment policy freely, as long as the allocation to each of the assets remained finite. In practice the situation is different. Fund managers are subject to investment constraints set by regulatory bodies,...

Persistent link: https://www.econbiz.de/10011206646

Jumps in Asset Prices

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In Part I of this book, asset prices and factor processes were represented by diffusion processes, driven by correlated … Brownian motions. In Part II we extend the theory — using as far as possible the same general approach — to jump-diffusion … processes, where the driving Brownian motions are augmented by a class of Poisson random measures, which we introduce in Section …

Persistent link: https://www.econbiz.de/10011206650

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