Joint tails impact in stochastic volatility portfolio selection models
type: Item
instance of: scholarly article
title: Joint tails impact in stochastic volatility portfolio selection models
zbMATH Open document ID: 1455.91232
author: Marco Bonomelli
author: Rosella Giacometti
author: Sergio Ortobelli Lozza
published in: Annals of Operations Research
publication date: 2021-01-06T00:00:00Z
review text: The authors investigate the construction of a nonparametric Markov chain process that allows to model the evolution of the cumulative wealth and its empirical volatility over time under thorough a non parametric Markov bivariate process. They use a tree structure to represent the investment evolution under the Markovian hypothesis, and apply a nonparametric Markov chain process to approximate the portfolio return distribution and its volatility under a real world probability. Moreover, they exploit the recombining effect significantly reducing the problem complexity. This tree structure allows an appropriate analysis of the portfolio return and its empirical volatility joints tails. In this framework, the impact of the tails on the optimal portfolio choices is analyzed. Summarising, the main contribution of this work is twofold. Firstly, a non parametric Markov stochastic volatility process is introduced and applied to portfolio selection problems. Secondly, the authors empirically examine the impact of the joints tails of the stochastic volatility model on optimal portfolio choices.
reviewed by: Yuliya S. Mishura
Mathematics Subject Classification ID: 91G10
Mathematics Subject Classification ID: 60E15
Mathematics Subject Classification ID: 60J28
zbMATH DE Number: 7290761
zbMATH Keywords: Markov chain
zbMATH Keywords: nonparametric Markov stochastic volatility process
zbMATH Keywords: Sharpe ratio
zbMATH Keywords: stochastic dominance
zbMATH Keywords: stochastic volatility
zbMATH Keywords: portfolio return distribution
MaRDI profile type: Publication
full work available at URL: s10479-020-03531-w
OpenAlex ID: W3005888813
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DOI: 10.1007/S10479-020-03531-W
description: scientific article; zbMATH DE number 7290761