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Dynamic Asset Allocation Strategies for Investors with Mortgage Liability in the Environment of Time-Varying Interest Rates

Journal of Financial Studies

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Title Dynamic Asset Allocation Strategies for Investors with Mortgage Liability in the Environment of Time-Varying Interest Rates
 
Creator Yuan-Hung Hsu Ku
Simon H. Yen
 
Description This paper provides a model of dynamic asset allocation strategy for investors with mortgage liability facing time-varying interest rates. We adopt the Duffie-Epstein (1992b) formulation to describe investors' preferences by a recursive utility function defined over consumption flows and use perturbation methods to get linear approximate solutions in continuous-time. We show that the long-term investor will have a positive intertemporal hedging demand on bonds coming from pure changes in interest rates. We provide other distinguishable hedging components in the equity portfolio and long-term real bonds of the optimal dynamic asset allocation for hedging investors' mortgage liability in this paper.
Key words: Stochastic investment opportunities, mortgage liability, intertemporal model.
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Date 2011-07-06
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011228
 
Source Journal of Financial Studies; Vol 15, No 1 (2007); 31
財務金èžå­¸åˆŠ; Vol 15, No 1 (2007); 31
 
Language —