Dynamic Asset Allocation Under VAR Constraint with Stochastic Interest Rates

20 Pages Posted: 14 Sep 2013 Last revised: 22 Oct 2013

See all articles by Donatien Hainaut

Donatien Hainaut

Université Catholique de Louvain

Date Written: December 6, 2008

Abstract

This paper addresses the problem of dynamic asset allocation under a bounded shortfall risk in a market composed of three assets: cash, stocks and a zero coupon bond. The dynamics of the instantaneous short rates is driven by a Hull and White model. In this setting, we determine and compare optimal investment strategies maximizing the CRRA utility of terminal wealth with and without value at risk constraint.

Keywords: asset allocation, value at risk, bounded shortfall risk, stochastic interest rates

JEL Classification: G11

Suggested Citation

Hainaut, Donatien, Dynamic Asset Allocation Under VAR Constraint with Stochastic Interest Rates (December 6, 2008). Annals of Operation Research, Vol. 172, No. 1, 2009, Available at SSRN: https://ssrn.com/abstract=2324172 or http://dx.doi.org/10.2139/ssrn.2324172

Donatien Hainaut (Contact Author)

Université Catholique de Louvain ( email )

Voie du Roman Pays 20,
Louvain La Neuve, 1348
Belgium

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