Optimal Portfolio Application with Double-Uniform Jump Model

Zongwu Zhu () and Floyd B. Hanson ()
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Zongwu Zhu: University of Illinois at Chicago
Floyd B. Hanson: University of Illinois at Chicago

Chapter Chapter 16 in Stochastic Processes, Optimization, and Control Theory: Applications in Financial Engineering, Queueing Networks, and Manufacturing Systems, 2006, pp 331-358 from Springer

Abstract: Abstract This paper treats jump-diffusion processes in continuous time, with emphasis on the jump-amplitude distributions, developing more appropriate models using parameter estimation for the market in one phase and then applying the resulting model to a stochastic optimal portfolio application in a second phase. The new developments are the use of double-uniform jump-amplitude distributions and time-varying market parameters, introducing more realism into the application model — a lognormal diffusion, log-double-uniform jump-amplitude model. Although unlimited borrowing and short-selling play an important role in pure diffusion models, it is shown that borrowing and shorting is limited for jump-diffusions, but finite jump-amplitude models can allow very large limits in contrast to infinite range models which severely restrict the instant stock fraction to [0,1]. Among all the time-dependent parameters modeled, it appears that the interest and discount rate have the strongest effects.

Keywords: Optimal portfolio with consumption; portfolio policy; jump-diffusion; double-uniform jump-amplitude (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isochp:978-0-387-33815-6_16

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DOI: 10.1007/0-387-33815-2_16

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