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A Note on Finding the Optimal Allocation Between a Risky Stock and a Risky Bond
Author(s) -
Angus John E.
Publication year - 2001
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.2204
Subject(s) - bond , rule of thumb , stock (firearms) , optimal allocation , economics , financial economics , financial market , derivative (finance) , mathematical economics , computer science , econometrics , actuarial science , mathematics , mathematical optimization , finance , engineering , algorithm , mechanical engineering
The allocation of financial assets among securities with different levels of risk is an essential topic inthe study, analysis, and strategic use of derivative securities and markets. In a recent paper, Browne(1999) determined the optimal allocation strategy for dividing investments between a risky stock and arisky bond. In this note, Browne's equation determining the optimal strategy is studied and some methodsare described for solving it. In addition, some useful rules‐of‐thumb, computational methods, andapproximation techniques are presented. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1181–1196,2001