Dynamic Asset Allocation Under VAR Constraint with Stochastic Interest Rates

2008 ◽  
Author(s):  
Donatien Hainaut
Keyword(s):  
Interest Rates ◽  
Asset Allocation ◽  
Stochastic Interest Rates ◽  
Dynamic Asset Allocation ◽  
Stochastic Interest

OPTIMAL ASSET ALLOCATION WITH STOCHASTIC INTEREST RATES IN REGIME-SWITCHING MODELS

2018 ◽  
Vol 21 (05) ◽  
pp. 1850032 ◽  
Author(s):  
C. YE ◽  
R. H. LIU ◽  
D. REN
Keyword(s):  
Interest Rates ◽  
Asset Allocation ◽  
Regime Switching ◽  
Optimization Problems ◽  
Stochastic Interest Rates ◽  
Power Utility ◽  
Regime Switching Models ◽  
Switching Models ◽  
Stochastic Interest ◽  
The Impact

This paper focuses on optimal asset allocation with stochastic interest rates in regime-switching models. A class of stochastic optimal control problems with Markovian regime-switching is formulated for which a verification theorem is provided. The theory is applied to solve two portfolio optimization problems (a portfolio of stock and savings account and a portfolio of mixed stock, bond and savings account) while a regime-switching Vasicek model is assumed for the interest rate. Closed-form solutions are obtained for a regime-switching power utility function. Numerical results are provided to illustrate the impact of regime-switching on the optimal investment decisions.

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