Monte Carlo Valuation of Optimal Portfolios in Complete Markets

Jaksa Cvitanic (), Levon Goukasian and Fernando Zapatero
Additional contact information
Fernando Zapatero: University of Southern California

No 1246, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: We introduce a method that relies exclusively on Monte Carlo simulation in order to compute optimal portfolios. Our method is completely general and only requires complete markets and knowledge of the dynamics of the security processes. It is precise and easy to implement. It can be applied regardless or the number of factors and of whether the agent derives utility from intertemporal consumption, terminal wealth or both. We perform some comparative statics and find that portfolios are sensitive to parameter values outside the class of affine models traditionally considered in the literature. The method we suggest can also be applied to the computation of the optimal hedge of a derivative when Monte Carlo simulation is used as a pricing method.

Date: 2000-08-01

Downloads: (external link)
http://fmwww.bc.edu/RePEc/es2000/1246.pdf main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ecm:wc2000:1246

Access Statistics for this paper

More papers in Econometric Society World Congress 2000 Contributed Papers from Econometric Society
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().