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Optimal portfolio allocation with higher moments

Cvitanić, Jakša and Polimenis, Vassilis and Zapatero, Fernando (2008) Optimal portfolio allocation with higher moments. Annals of Finance, 4 (1). pp. 1-28. ISSN 1614-2446. doi:10.1007/s10436-007-0071-5. https://resolver.caltech.edu/CaltechAUTHORS:20190826-124741137

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Abstract

We model the risky asset as driven by a pure jump process, with non-trivial and tractable higher moments. We compute the optimal portfolio strategy of an investor with CRRA utility and study the sensitivity of the investment in the risky asset to the higher moments, as well as the resulting wealth loss from ignoring higher moments. We find that ignoring higher moments can lead to significant overinvestment in risky securities, especially when volatility is high.


Item Type:Article
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https://doi.org/10.1007/s10436-007-0071-5DOIArticle
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ORCID:
AuthorORCID
Cvitanić, Jakša0000-0001-6651-3552
Additional Information:© Springer-Verlag 2007. Received: 9 March 2006 / Revised: 19 February 2007 / Published online: 16 March 2007. The research of J. Cvitanić was supported in part by the National Science Foundation, under grants DMS 04-03575 and DMS 06-31366. Previous versions of this paper have been presented in seminars at USC, Cemfi (Madrid), and the 2006 Winter Meetings of the Econometric Society. We are grateful to Michael Johaness (the discussant), seminar participants, and an anonymous referee, for many comments and suggestions. Remaining errors are our sole responsibility.
Funders:
Funding AgencyGrant Number
NSFDMS 04-03575
NSFDMS 06-31366
Subject Keywords:Pure-jump processes · Optimal allocation · Higher moments
Issue or Number:1
Classification Code:JEL Classification Numbers: C61; G11
DOI:10.1007/s10436-007-0071-5
Record Number:CaltechAUTHORS:20190826-124741137
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20190826-124741137
Official Citation:Cvitanić, J., Polimenis, V. & Zapatero, F. Annals of Finance (2008) 4: 1. https://doi.org/10.1007/s10436-007-0071-5
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:98250
Collection:CaltechAUTHORS
Deposited By: George Porter
Deposited On:26 Aug 2019 20:06
Last Modified:16 Nov 2021 17:37

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