Optimal portfolio in a continuous-time self-exciting threshold model | Zendy

Hui Meng | Zendy; Fei Lung Yuen | Zendy; Tak Kuen Siu | Zendy; Hailiang Yang | Zendy

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Optimal portfolio in a continuous-time self-exciting threshold model

Author(s) -

Hui Meng,

Fei Lung Yuen,

Tak Kuen Siu,

Hailiang Yang

Publication year - 2013

Publication title -

journal of industrial and management optimization

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.325

H-Index - 32

eISSN - 1553-166X

pISSN - 1547-5816

DOI - 10.3934/jimo.2013.9.487

Subject(s) - portfolio , martingale (probability theory) , computer science , mathematical optimization , asset (computer security) , mathematical economics , economics , mathematics , financial economics , computer security

This paper discusses an optimal portfolio selection problem in a continuous-time economy, where the price dynamics of a risky asset are governed by a continuous-time self-exciting threshold model. This model provides a way to describe the effect of regime switching on price dynamics via the self-exciting threshold principle. Its main advantage is to incorporate the regime switching effect without introducing an additional source of uncertainty. A martingale approach is used to discuss the problem. Analytical solutions are derived in some special cases. Numerical examples are given to illustrate the regime-switching effect described by the proposed model.18 page(s

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