In: Journal of financial econometrics, 2007, vol. 5, no. 4, p. 591–623
We propose a multivariate nonparametric technique for generating reliable shortterm historical yield curve scenarios and confidence intervals. The approach is based on a Functional Gradient Descent (FGD) estimation of the conditional mean vector and covariance matrix of a multivariate interest rate series. It is computationally feasible in large dimensions and it can account for non- linearities...
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The paper presents a robust version of a simple two-assets Merton's (1969) model where the optimal choices and the implied shadow market prices of risk for a representative robust decision maker (RDM) can be easily described. With the exeption of the log utility case, precautionary behaviour is induced in the optimal consumption-investment rules through a substitution of investment in risky...
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In: Journal of Econometrics, 2005, vol. 129, no. 1-2, p. 139-182
We propose a class of new robust GMM tests for endogenous structural breaks. The tests are based on supremum, average and exponential functionals derived from robust GMM estimators with bounded influence function. We study the theoretical local robustness properties of the new tests and show that they imply a uniformly bounded asymptotic sensitivity of size and power under general local...
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In: Review of Finance, 2004, vol. 8, no. 2, p. 279-324
We analyze the empirical predictions arising from settings of ambiguity aversion in intertemporal heterogenous agents economies. We study equilibria for two tractable wealth-homothetic settings of ambiguity aversion in continuous time. Such settings are motivated by a different robust control optimization problem. We show that ambiguity aversion affects optimal portfolio exposures in a way that...
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A typical problem arising in the financial planning for private investors consists in the fact that the initial investor’s portfolio, the one determined by the consulting process of the financial institution and the universe of instruments made available to the investor have to be matched/optimized when determining the relevant portfolio choice. We call this problem the three-portfolios...
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We analyze and compare analytically continuous-time financial equilibria where heterogeneous risk averse investors care about model misspecification through some preference for robustness and in the presence of a stochastic opportunity set. This incorporates a concern for model misspecification into equilibrium asset prices. Since no exact equilibrium computations are possible in this model...
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We present a flexible analytical framework that incorporates the equilibrium impact of a (possibly state dependent) sentiment for pessimism in continuous time intertemporal asset pricing. State dependent pessimism comes from a state dependent confidence in the reference belief on equity returns dynamics and implies conservative optimal policies precisely in states where such confidence is low. In...
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We present a geometric approach to discrete time multiperiod mean variance portfolio optimization that largely simplifies the mathematical analysis and the economic interpretation of such model settings. We show that multiperiod mean variance optimal policies can be decomposed in an orthogonal set of basis strategies, each having a clear economic interpretation. This implies that the...
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