Asset Allocation in Markets with Contagion: The Interplay between Volatilities, Jump Intensities, and Correlations
Zusammenfassung
We study the impact of financial contagion on the dynamic asset allocation problem of a CRRA investor facing an incomplete market with two risky assets. We apply a Markov chain regime-switching framework with state-dependent jump intensities, diffusion volatilities and diffusion correlations. The key model feature that a switch to the bad contagion regime is triggered by a loss in one of the risky assets allows for the implementation of a hedging demand against contagion risk. Moreover, a state-dependent diffusion correlation combined with heterogeneity in jump intensities and volatilities can, e.g., generate a flight to quality effect upon a systemic jump.
Schlüsselwörter
Asset allocation; Portfolio choice; Contagion; Systemic risk; Regime switching
Zitieren als
Konermann, P., Meinerding, C., & Sedova, O. (2013). Asset Allocation in Markets with Contagion: The Interplay between Volatilities, Jump Intensities, and Correlations. Review of Financial Economics, 22(1), 36–46.Details
Publikationstyp
Forschungsartikel (Zeitschrift)
Begutachtet
Ja
Publikationsstatus
Veröffentlicht
Jahr
2013
Fachzeitschrift
Review of Financial Economics
Band
22
Ausgabe
1
Erste Seite
36
Letzte Seite
46
Sprache
Englisch
ISSN
1058-3300
DOI