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Risk management and asset allocation with jump-diffusion exogenous risks: Some algebraic approximated solutions

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  • Francesco Menoncin

Abstract

This paper analyses the portfolio problem of an investor who wants to maximize the expected utility of his terminal wealth both in a complete and an incomplete financial market. The investor must cope with two sets of exogenous risks following jump-diffusion processes. Thanks to an approximated solution some rules are provided to follow for hedging portfolio against exogenous risks. Finally, some comparisons with models computing the optimal portfolio in a closed form are carried out in order to check the goodness of our approximation.

Suggested Citation

  • Francesco Menoncin, 2005. "Risk management and asset allocation with jump-diffusion exogenous risks: Some algebraic approximated solutions," The European Journal of Finance, Taylor & Francis Journals, vol. 11(3), pages 223-246.
    • Handle: RePEc:taf:eurjfi:v:11:y:2005:i:3:p:223-246
    DOI: 10.1080/1351847042000254220
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    References listed on IDEAS

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