Abstract
This paper discusses an optimal portfolio selection problem in a
continuous-time economy, where the price dynamics of a risky asset are governed by a continuous-time self-exciting threshold model. This model provides
a way to describe the effect of regime switching on price dynamics via the selfexciting threshold principle. Its main advantage is to incorporate the regime
switching effect without introducing an additional source of uncertainty. A
martingale approach is used to discuss the problem. Analytical solutions are
derived in some special cases. Numerical examples are given to illustrate the
regime-switching effect described by the proposed model.
continuous-time economy, where the price dynamics of a risky asset are governed by a continuous-time self-exciting threshold model. This model provides
a way to describe the effect of regime switching on price dynamics via the selfexciting threshold principle. Its main advantage is to incorporate the regime
switching effect without introducing an additional source of uncertainty. A
martingale approach is used to discuss the problem. Analytical solutions are
derived in some special cases. Numerical examples are given to illustrate the
regime-switching effect described by the proposed model.
| Original language | English |
|---|---|
| Pages (from-to) | 487-504 |
| Journal | Journal of Industrial and Management Optimization |
| Volume | 9 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2013 |
| Externally published | Yes |