Partial information about contagion risk, self-exciting processes and portfolio optimization

Arbeitspapier

This paper compares two classes of models that allow for additional channels of correlation between asset returns: regime switching models with jumps and models with contagious jumps. Both classes of models involve a hidden Markov chain that captures good and bad economic states. The distinctive feature of a model with contagious jumps is that large negative returns and unobservable transitions of the economy into a bad state can occur simultaneously. We show that in this framework the filtered loss intensities have dynamics similar to self-exciting processes. Besides, we study the impact of unobservable contagious jumps on optimal portfolio strategies and filtering.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 28

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Portfolio Choice; Investment Decisions
• Subject: Asset Allocation ; Contagion ; Nonlinear Filtering ; Hidden State ; Selfexciting Processes

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Branger, Nicole ; Kraft, Holger ; Meinerding, Christoph
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (where): Frankfurt a. M.
• (when): 2013

Further information

• DOI: doi:10.2139/ssrn.1633479
• Handle: http://hdl.handle.net/10419/88730
• URN: urn:nbn:de:hebis:30:3-315514
• Last update: 10.03.2025, 11:45 AM CET