The problem of modeling claims occurring in periodic random environments is discussed in this paper. In the classical approach of risk theory, the occurrence of claims is modeled by counting processes that do not account for claims following a periodic pattern. The author discusses how the use of the classical approach to model a periodic portfolio might lead to the miscalculation of important ...

I study a theoretical model of life-cycle portfolio choice for an investor who has an option to invest in human capital but is liquidity constrained. I find that, since the young are more likely to exercise the option than the old, they are more concerned about liquidity risk (i.e. the risk that the liquidity constraint binds when it is optimal to invest). This, in turn, implies a hump-shaped p...

Two related and under-studied components of modeling are: a) the process by which simplifying assumptions are derived; and b) the process by which tests of model validity are designed. This case study illustrates these processes for two simple investment models: a) a version of the model supporting classical portfolio theory; and b) a version of a mean-reverting model consistent with some of th...

We consider the dynamic portfolio choice problem in a jump-diffusion model, where an investor may face constraints on her portfolio weights: for instance, no-short-selling constraints. It is a daunting task to use standard numerical methods to solve a constrained portfolio choice problem, especially when there is a large number of state variables. By suitably embedding the constrained problem i...

The research on computational advertising so far has focused on finding the single best ad. However, in many real situations, more than one ad can be presented. Although it is possible to address this problem myopically by using a single-ad optimisation technique in serial-mode, i.e., one at a time, this approach can be ineffective and inefficient because it ignores the correlation between ads....

We derive asset-pricing and portfolio-choice implications of a dynamic incomplete-markets model in which consumers are heterogeneous in several respects: labor income, asset wealth, and preferences. In contrast to earlier papers, we insist on at least roughly matching the model’s implications for heterogeneity—notably, the equilibrium distributions of income and wealth—with those in U.S. data. ...

We investigate how the inability to continuously trade an asset affects portfolio choice. We extend the standard Merton model to include an illiquid asset that can only be traded at infrequent, stochastic intervals. Because consumption is financed through liquid wealth only, the presence of illiquidity leads to increased and state-dependent risk aversion. Illiquidity leads to under-investment i...

This paper studies portfolio choice and pricing in markets in which immediate trading may be impossible, such as the market for private equity and certain over-the-counter markets. Optimal positions are found to depend significantly and naturally on liquidity: when future liquidity is expected to be higher, agents take more extreme positions, given that they do not have to hold them for long wh...

We employ parametric and non-parametric cointegration to investigate the extent of integration between African stock markets and the rest of the world. Long-run correlation estimates imply very low association between the two. The two distinct cointegration approaches confirm the latter through recursive estimation. The implication is that global market movements may have little impact on Afric...

This work aims the development of an enhanced portfolio selection method, which is based on the classical portfolio theory proposed by Markowitz (1952) and incorporates the local Gaussian correlation model for optimization. This novel method of portfolio selection incorporates two assumptions: the non-linearity of returns and the empirical observation that the relation between assets is dynamic...