International Portfolios: A Comparison of Solution Methods

Katrin Rabitsch, Serhiy Stepanchuk () and Viktor Tsyrennikov
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Serhiy Stepanchuk: École Polytechnique Fédérale de Lausanne

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: We compare the performance of the perturbation-based (local) portfolio solution method of Devereux and Sutherland (2010a, 2011) with a global solution method. We find that the local method performs very well when the model is designed to capture stylized macroeconomic facts and countries/agents are symmetric, i.e. when the latter have similar size, face similar risks and trade assets with similar risk properties. It performs less satisfactory when the agents engaged in financial trade are asymmetric. The global solution method performs substantially better when the model is parameterized to match the observed equity premium, a key stylized finance fact.

Keywords: Country Portfolios; Solution Methods (search for similar items in EconPapers)
JEL-codes: E44 F41 G11 G15 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-mac and nep-opm
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: International portfolios: A comparison of solution methods (2015)
Working Paper: International Portfolios: A Comparison of Solution Methods (2014)
Working Paper: International Portfolios: A Comparison of Solution Methods (2013)
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