Risk management and asset allocation with jump-diffusion exogenous risks: Some algebraic approximated solutions

Francesco Menoncin ()

The European Journal of Finance, 2005, vol. 11, issue 3, 223-246

Abstract: This paper analyses the portfolio problem of an investor who wants to maximize the expected utility of his terminal wealth both in a complete and an incomplete financial market. The investor must cope with two sets of exogenous risks following jump-diffusion processes. Thanks to an approximated solution some rules are provided to follow for hedging portfolio against exogenous risks. Finally, some comparisons with models computing the optimal portfolio in a closed form are carried out in order to check the goodness of our approximation.

Keywords: Asset allocation; exogenous risk; Feynman-Kac-super-˘ theorem; stochastic investment opportunities (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1080/1351847042000254220

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