Disciplines
Finance and Financial Management
Abstract
This paper provides a general framework for analyzing optimal dynamic asset allocation problems in economies with infrequent events and where the investment opportunities are stochastic and predictable. Analytical solutions are obtained, with which I do a thorough comparative study of the impacts of jumps on the dynamic decision. I also calibrate the model to the U.S. equity market and assess the quantitative impacts of jumps under a dynamic environment. I find that jump risk not only makes the investor's allocation more conservative overall but also makes her dynamic portfolio rebalancing less dramatic over time.
Recommended Citation
Wu, Liuren, "Jumps and Dynamic Asset Allocation" (2000). CRIF Working Paper series. 28.
https://research.library.fordham.edu/crif_working_papers/28
