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Elucidating Asymmetric Volatility in Asset Returns and Optimizing Portfolio Choice Using Time-Changed Lévy Processes

Journal of Financial Studies

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Title Elucidating Asymmetric Volatility in Asset Returns and Optimizing Portfolio Choice Using Time-Changed Lévy Processes
 
Creator Zheng-Hui Chen
Szu-Lang Liao
 
Subject —
 
Description This study significantly extends the applicability of time-changed Lévy processes to the portfolio optimization. The leverage effect directly induces the intertemporal asymmetric volatility hedging demand, while the volatility feedback effect exerts a minor influence via the leverage effect under the pure-continuous time-changed Lévy process. Furthermore, the leverage effect still plays a major role while the volatility feedback effect just works over the short-term investment horizon under the infinite-jump Lévy process. Based on the proposed general stochastic asymmetric volatility asset return model, we conclude that the diffusion term is an essential determinant of financial modeling for index dynamics given infinite-activity jump structure.Key words: Optimal portfolio choice, stochastic volatility, time-changed Lévy processes, leverage effect, volatility feedback effect, asymmetric volatility
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Contributor —
 
Date 2011-03-04
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011039
 
Source Journal of Financial Studies; Vol 18, No 2 (2010); 135
財務金èžå­¸åˆŠ; Vol 18, No 2 (2010); 135
 
Language en