Dynamic Asset Allocation with Default and Systemic Risks

Alessandro Sbuelz ()
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Alessandro Sbuelz: Catholic University of Milan

Chapter Chapter 11 in Handbook of Recent Advances in Commodity and Financial Modeling, 2018, pp 241-250 from Springer

Abstract: Abstract Systemic risk breeds default risk. I investigate the optimal portfolio implications of their joint presence for non-myopic investors in arbitrage-free markets when such risks take the form of asset value discontinuities. I contribute to the multiple-asset jump-diffusion portfolio analysis of Das and Uppal (J Financ 59:2809–2834, 2004) by introducing default risk and its investment-horizon effects on optimal portfolios (the optimal investment rules in Das and Uppal (J Financ 59:2809–2834, 2004) are time-invariant) and by linking excess expected returns to risk exposures.

Keywords: Strategic asset allocation; Investment-horizon effects; Investment opportunity set; Default risk; Systemic risk; Arbitrage-free markets; Risk premia; Jump-diffusive processes; G01; G11; G12; C61 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/978-3-319-61320-8_11

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