Optimal portfolio in a continuous-time self-exciting threshold model

Hui Meng; Fei Lung Yuen; Tak Kuen Siu; Hailiang Yang

doi:10.3934/jimo.2013.9.487

Optimal portfolio in a continuous-time self-exciting threshold model

Hui Meng^*, Fei Lung Yuen, Tak Kuen Siu, Hailiang Yang

^*Corresponding author for this work

Department of Applied Finance

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

78 Downloads (Pure)

Abstract

This paper discusses an optimal portfolio selection problem in a continuous-time economy, where the price dynamics of a risky asset are gov-erned by a continuous-time self-exciting threshold model. This model provides a way to describe the effect of regime switching on price dynamics via the self-exciting threshold principle. Its main advantage is to incorporate the regime switching effect without introducing an additional source of uncertainty. A martingale approach is used to discuss the problem. Analytical solutions are derived in some special cases. Numerical examples are given to illustrate the regime-switching effect described by the proposed model.

Original language	English
Pages (from-to)	487-504
Number of pages	18
Journal	Journal of Industrial and Management Optimization
Volume	9
Issue number	2
DOIs	https://doi.org/10.3934/jimo.2013.9.487
Publication status	Published - 2013

Bibliographical note

Copyright 2013 AIMS. First published in Journal of Industrial and Management Optimization (JIMO) Volume 9 Issue 2, published by the American Institute of Mathematical Society. The original article can be found at http://dx.doi.org/10.3934/jimo.2013.9.487 Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

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title = "Optimal portfolio in a continuous-time self-exciting threshold model",

abstract = "This paper discusses an optimal portfolio selection problem in a continuous-time economy, where the price dynamics of a risky asset are gov-erned by a continuous-time self-exciting threshold model. This model provides a way to describe the effect of regime switching on price dynamics via the self-exciting threshold principle. Its main advantage is to incorporate the regime switching effect without introducing an additional source of uncertainty. A martingale approach is used to discuss the problem. Analytical solutions are derived in some special cases. Numerical examples are given to illustrate the regime-switching effect described by the proposed model.",

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Optimal portfolio in a continuous-time self-exciting threshold model

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