Pricing stock and bond derivatives with a multi-factor Gaussian model

The martingale approach to pricing contingent claims can be applied in a multiple state variable model. The idea is used to derive the prices of derivative securities (futures on stock and bond futures, options on stocks, bonds and futures) given a continuous time Gaussian multi-factor model of the returns of stocks and bonds. The bond market is similar to Langetieg's multi-factor model, which has closed-form solutions. This model is a generalization of Vasicek's model, where the term structure depends on state variables following correlated mean reverting processes. The stock market is affected by systematic and unsystematic risk.Derivative Securities, Multi-factor Model, Continuous-time, Pricing,

Dynamic Asset Allocation in a Mean-Variance Framework

The aim of this article is to analyze the portfolio strategies that are mean-variance efficient when continuous rebalancing is allowed between the current date (0) and the horizon (T). Under very general assumptions, when a zero-coupon bond of maturity T exists, the dynamic efficient frontier is a straight line, the slope of which is explicitly characterized. Every dynamic mean-variance efficient strategy can be viewed as buy and hold combinations of two funds: the zero-coupon bond of maturity T and a continuously rebalanced portfolio. An appropriate dynamic strategy defining the latter is explicitly derived for two particular price processes and comparisons of the Efficient Frontiers (Static versus Dynamic) are provided in these cases.Portfolio Selection Model, Mean-Variance Analysis, Dynamic Strategies

Is the Chinese Currency Undervalued?

faculty to conduct investigations on the various forces that are driving globalization, the implications of globalization for business strategy and government policy, as well as the effects of globalization on people’s day-to-day lives. The projects consider how globalization is changing the relationship between markets and governance at local, national and international levels; how globalization is affecting the stability of international financial markets, and how information technology effects globalization. The Occasional Paper Series showcases research papers that have been funded by the GWCSG. It provides GW and the general public with access to innovative ideas, expands opportunities for research collaboration between academics and practitioners, and gives more timely access to high-quality research than is available from traditional academic or professional journals. All papers published in this series can be found at the GWCSG Web site, located a

Uncertainty, networks and real options

Networks Real options Uncertainty Hubs Spokes Interlinked stars Dominant group Strong stability

Dynamic Asset Allocation for Stocks, Bonds, and Cash

Closed-form solutions for HARA optimal portfolios are obtained in a dynamic portfolio optimization model in three assets (stocks, bonds, and cash) in a Vasicek-type model of stochastic interest rates with correlated stock prices. The HARA is a buy-and-hold combination of a zero-coupon bond with maturity matching the investor's horizon and a "CRRA mutual fund." This simple characterization facilitates insights about investor behavior over time and provides explanations on the rational use of convex versus concave investment strategies. The model illuminates clearly the role of the different market parameters and relative risk aversion in portfolio strategies.

Pricing contingent claims in incomplete markets using the numeraire portfolio

SIGLEAvailable from INIST (FR), Document Supply Service, under shelf-number : DO 6669 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueFRFranc

Spending rules for endowment funds

Endowment fund managers face an asset allocation problem with several particularities: they are more interested in spending for current and future beneficiaries than growing value, although the trade-off between these two alternatives needs to be understood; they have to consider longest-term investment, typically an infinite horizon. We do address these allocation constraints in a dynamic framework where minimum subsistence levels (introducing the idea that a minimum spending amount needs to be made at every time period) are introduced in the objective function. We derive explicit formulas for the optimal spending stream, endowment value, spending rate and portfolio strategy in a simple Black/Scholes type economy. We analyze the effects of parameter changes on asset allocation decisions and provide simulations on bearish, median and bullish paths. Copyright Springer Science + Business Media, LLC 2006

On the bond-stock asset allocation puzzle

SIGLEAvailable from INIST (FR), Document Supply Service, under shelf-number : DO 6689 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueFRFranc

Dynamic asset allocation for stocks, bonds and cash over long horizons

SIGLEAvailable from INIST (FR), Document Supply Service, under shelf-number : DO 6688 / INIST-CNRS - Institut de l'Information Scientifique et TechniqueFRFranc