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RISK MANAGEMENT OF FINANCIAL CRISES: AN OPTIMAL INVESTMENT STRATEGY WITH MULTIVARIATE JUMP-DIFFUSION MODELS

Published online by Cambridge University Press:  11 May 2017

Chou-Wen Wang  and
Hong-Chih Huang
Chou-Wen Wang
Affiliation:
Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan Fellow of Risk and Insurance Research Center, College of Commerce, National Chengchi University, Taipei, Taiwan E-Mail: [email protected]
Hong-Chih Huang*
Affiliation:
Department of Risk Management and Insurance, Fellow of Risk and Insurance Research Center, College of Commerce, National Chengchi University, Taipei, Taiwan
*
E-Mail: [email protected]
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Abstract

This paper provides an optimal asset allocation strategy to enhance risk management performance in the face of a financial crisis; this strategy entails constructing a good asset model – a multivariate jump-diffusion (MJD) model which includes idiosyncratic and systematic jumps simultaneously – and choosing suitable asset allocations and objective functions for fund management. This study also provides the dependence structure for the MJD model. The empirical implementation demonstrates that the proposed MJD model provides more detailed information about the financial crisis, allowing fund managers to determine an appropriate asset allocation strategy that enhances investment performance during the crisis.

Keywords

Financial crisisasset allocationsubordinatorsidiosyncratic jumpsystematic jumpmultivariate jump-diffusion process
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 47 , Issue 2 , May 2017 , pp. 501 - 525
Copyright
Copyright © Astin Bulletin 2017 

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Footnotes

*

The first author was supported by the MOST102-2410-H-327-001-MY3 from the Ministry of Science and Technology, Taipei, Taiwan.

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