Dynamic Asset Allocation with Event Risk

Risk Sensitive Dynamic Asset Allocation

This paper develops a continuous time portfolio optimization model where the mean returns of individual securities or asset categories are explicitly affected by underlying economic factors such as dividend yields, a firm's ROE, interest rates, and unemployment rates. The factors are Gaussian processes, and the drift coefficients for the securities are aEne hnctions of these factors. We employ ...

Dynamic Asset Allocationwith Event Risk

Major events often trigger abrupt changes in stock prices and volatility.We study the implications of jumps in prices and volatility on investment strategies. Using the event-risk framework of Du⁄e, Pan, and Singleton (2000), we provide analytical solutions to the optimal portfolio problem. Event risk dramatically a¡ects the optimal strategy. An investor facing event risk is less willing to tak...

Dynamic Asset Allocation and Downside-Risk Aversion

This paper considers dynamic asset allocation in a mean versus downside-risk framework. We derive closed-form solutions for the optimal portfolio weights when returns are lognormally distributed. Moreover, we study the impact of skewed and fat-tailed return distributions. We nd that the optimal fraction invested in stocks is V-shaped: at low and high levels of wealth the investor increases the ...

Dynamic asset allocation techniques

Investment strategy is often static, punctuated by infrequent reviews. For most long-term investors, this practice results in large risks being taken that could otherwise be managed with a more dynamic investment policy. The bulk of this paper is aimed at analysing and describing two multi-period investment strategy problems – in order to derive potential dynamic strategies. Along the way, we s...

Dynamic Asset Allocation ∗ Claus