IDEAS home Printed from https://ideas.repec.org/a/taf/apeclt/v20y2013i8p790-794.html
   My bibliography  Save this article

Jumps in an stochastic optimization: self-financing portfolio for risk averse investors: does bequest matter?

Author

Listed:
  • Şaziye Gaziog̃lu
  • Azize Bastıyalı-Hafavi
  • Özge Sezgin

Abstract

We optimized consumer/investor behaviour, subject to self-financing constraint by using stochastic dynamics system with jumps. Our aim in this article was to compare a stochastic optimization model with and without jumps in a self-financing portfolio model, for the risk averse investors. In this article, our contribution to the literature was to introduce an analytical solution of the utility maximizing model and to investigate the consequences of jumps and bequest to the economic system. A previous model by Gazioglu and Bastiyali-Hafavi (2010) used optimization, only with a Brownian motion during optimization. In this article, we introduced jump difussion to Brownian motion during optimization. We compared the model with and without jumps for the risk averse investors. Furthermore, as a form of wealth, we compared the results with and without bequest.

Suggested Citation

  • Şaziye Gaziog̃lu & Azize Bastıyalı-Hafavi & Özge Sezgin, 2013. "Jumps in an stochastic optimization: self-financing portfolio for risk averse investors: does bequest matter?," Applied Economics Letters, Taylor & Francis Journals, vol. 20(8), pages 790-794, May.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:8:p:790-794
    DOI: 10.1080/13504851.2012.744158
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/13504851.2012.744158
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13504851.2012.744158?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kocherlakota, Narayana R, 1990. "Disentangling the Coefficient of Relative Risk Aversion from the Elasticity of Intertemporal Substitution: An Irrelevance Result," Journal of Finance, American Finance Association, vol. 45(1), pages 175-190, March.
    2. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-262, April.
    3. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
    4. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    5. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sydney Ludvigson, 2008. "The Research Agenda: Sydney Ludvigson on Empirical Evaluation of Economic Theories of Risk Premia," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 9(2), April.
    2. Josep Pijoan-Mas, 2007. "Pricing Risk in Economies with Heterogeneous Agents and Incomplete Markets," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 987-1015, September.
    3. John Donaldson & Rajnish Mehra, 2007. "Risk Based Explanations of the Equity Premium," NBER Working Papers 13220, National Bureau of Economic Research, Inc.
    4. Saziye Gaziog-super-˜lu & Azize Bastıyalı-Hayfavi, 2010. "Stochastic optimization applied to self-financing portfolio: does bequest matter?," Applied Economics, Taylor & Francis Journals, vol. 42(30), pages 3831-3838.
    5. Munk, Claus, 2015. "Financial Asset Pricing Theory," OUP Catalogue, Oxford University Press, number 9780198716457.
    6. Hansen, Lars Peter, 2013. "Uncertainty Outside and Inside Economic Models," Nobel Prize in Economics documents 2013-7, Nobel Prize Committee.
    7. Jianfeng Yu, 2011. "A sentiment-based explanation of the forward premium puzzle," Globalization Institute Working Papers 90, Federal Reserve Bank of Dallas.
    8. Ravi Kashyap, 2016. "Solving the Equity Risk Premium Puzzle and Inching Towards a Theory of Everything," Papers 1604.04872, arXiv.org, revised Sep 2019.
    9. Stefan Nagel, 2013. "Empirical Cross-Sectional Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 167-199, November.
    10. David Backus & Mikhail Chernov & Stanley Zin, 2014. "Sources of Entropy in Representative Agent Models," Journal of Finance, American Finance Association, vol. 69(1), pages 51-99, February.
    11. van Binsbergen, Jules H. & Fernández-Villaverde, Jesús & Koijen, Ralph S.J. & Rubio-Ramírez, Juan, 2012. "The term structure of interest rates in a DSGE model with recursive preferences," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 634-648.
    12. John H. Cochrane, 2017. "Macro-Finance," Review of Finance, European Finance Association, vol. 21(3), pages 945-985.
    13. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.
    14. Kihlstrom, Richard, 2009. "Risk aversion and the elasticity of substitution in general dynamic portfolio theory: Consistent planning by forward looking, expected utility maximizing investors," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 634-663, September.
    15. Anisha Ghosh & Christian Julliard & Alex P. Taylor, 2017. "What Is the Consumption-CAPM Missing? An Information-Theoretic Framework for the Analysis of Asset Pricing Models," The Review of Financial Studies, Society for Financial Studies, vol. 30(2), pages 442-504.
    16. Andreasen, Martin, 2011. "An estimated DSGE model: explaining variation in term premia," Bank of England working papers 441, Bank of England.
    17. Angelo Melino & Alan X. Yang, 2003. "State Dependent Preferences Can Explain the Equity Premium Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 806-830, October.
    18. YiLi Chien & Hanno Lustig, 2010. "The Market Price of Aggregate Risk and the Wealth Distribution," The Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1596-1650, April.
    19. Cogley, Timothy, 2002. "Idiosyncratic risk and the equity premium: evidence from the consumer expenditure survey," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 309-334, March.
    20. Andrei Semenov, 2003. "An Empirical Assessment of a Consumption CAPM with a Reference Level under Incomplete Consumption Insurance," Working Papers 2003_5, York University, Department of Economics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apeclt:v:20:y:2013:i:8:p:790-794. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEL20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.