Asset allocation under regime-switching models

Na Song*, Wai Ki Ching, Dong Mei Zhu, Tak Kuen Siu

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contribution

1 Citation (Scopus)

Abstract

We discuss an optimal asset allocation problem in a wide class of discrete-time regime-switching models including the hidden Markovian regime-switching (HMRS) model, the interactive hidden Markovian regime-switching (IHMRS) model and the self-exciting threshold autoregressive (SETAR) model. In the optimal asset allocation problem, the object of the investor is to select an optimal portfolio strategy so as to maximize the expected utility of wealth over a finite investment horizon. We solve the optimal portfolio problem using a dynamic programming approach in a discrete-time set up. Numerical results are provided to illustrate the practical implementation of the models and the impacts of different types of regime switching on optimal portfolio strategies.

Original languageEnglish
Title of host publicationProceedings of the 2012 5th International Conference on Business Intelligence and Financial Engineering, BIFE 2012
EditorsLean Yu, Guoxing Zhang, Shouyang Wang
Place of PublicationPiscataway, NJ
PublisherInstitute of Electrical and Electronics Engineers (IEEE)
Pages144-148
Number of pages5
ISBN (Print)9780769547503
DOIs
Publication statusPublished - 2012
Event2012 5th International Conference on Business Intelligence and Financial Engineering, BIFE 2012 - Lanzhou, Gansu, China
Duration: 18 Aug 201221 Aug 2012

Other

Other2012 5th International Conference on Business Intelligence and Financial Engineering, BIFE 2012
CountryChina
CityLanzhou, Gansu
Period18/08/1221/08/12

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  • Cite this

    Song, N., Ching, W. K., Zhu, D. M., & Siu, T. K. (2012). Asset allocation under regime-switching models. In L. Yu, G. Zhang, & S. Wang (Eds.), Proceedings of the 2012 5th International Conference on Business Intelligence and Financial Engineering, BIFE 2012 (pp. 144-148). [6305098] Piscataway, NJ: Institute of Electrical and Electronics Engineers (IEEE). https://doi.org/10.1109/BIFE.2012.38