Optimizing a Portfolio of Liquid and Illiquid Assets

John M. Mulvey (), Woo Chang Kim () and Changle Lin ()
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John M. Mulvey: Bendheim Center for Finance, Princeton University
Woo Chang Kim: KAIST
Changle Lin: Princeton University

Chapter Chapter 7 in Optimal Financial Decision Making under Uncertainty, 2017, pp 151-175 from Springer

Abstract: Abstract Current market conditions pose new challenges for institutional investors. Traditional asset and liability models are struggling to meet investors’ needs due to poor performance of equity and bond markets. The move of portfolio allocation to alternative assets is evident. As a result, illiquidity issues and rebalancing difficulty arise. We propose some new tactics of commodity futures to enhance the performance of portfolio return as well as solving illiquidity issues. Hidden Markov Model and multistage stochastic optimization are used to systematically optimize portfolio over a set of assets.

Keywords: Asset liability model; Illiquidity; Commodity futures; Hidden Markov Model; Multi-stage optimization (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/978-3-319-41613-7_7

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