Asset allocation under threshold autoregressive models

Na Song, Tak Kuen Siu, Wa‐Ki Ching, Howell Tong and Hailiang Yang

Applied Stochastic Models in Business and Industry, 2012, vol. 28, issue 1, 60-72

Abstract: We discuss the asset allocation problem in the important class of parametric non‐linear time series models called the threshold autoregressive model in (J. Roy. Statist. Soc. Ser. A 1977; 140:34–35; Patten Recognition and Signal Processing. Sijthoff and Noordhoff: Netherlands, 1978; and J. Roy. Statist. Soc. Ser. B 1980; 42:245–292). We consider two specific forms, one self‐exciting (i.e. the SETAR model) and the other smooth (i.e. the STAR) model developed by Chan and Tong (J. Time Ser. Anal. 1986; 7:179–190). The problem of maximizing the expected utility of wealth over a planning horizon is considered using a discrete‐time dynamic programming approach. This optimization approach is flexible enough to deal with the optimal asset allocation problem under a general stochastic dynamical system, which includes the SETAR model and the STAR model as particular cases. Numerical studies are conducted to demonstrate the practical implementation of the proposed model. We also investigate the impacts of non‐linearity in the SETAR and STAR models on the optimal portfolio strategies. Copyright © 2011 John Wiley & Sons, Ltd.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1002/asmb.897

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: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:28:y:2012:i:1:p:60-72

Access Statistics for this article

More articles in Applied Stochastic Models in Business and Industry from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().