Title: Optimal Dynamic Portfolio Allocation under International Investment Restriction
Abstract: In contrast with the results of previous studies, we extend the research of the investorfs portfolio allocation problem into a continuous dynamical international market where the investment barrier of international portfolio exists. With deterministic market prices of risks, CRRA utility function and the existence of a simple investment barrier, the investor optimally hedges against the investment opportunity by allocating funds into three portfolios which are constructed by unconstrained bank accounts, stock indexes and bonds. The first portfolio is the so called mean-variance portfolio, the second is the hedge portfolio, and the third is the synthetic portfolio which mimics the expected excess return of the constrained security in foreign country.
Keywords:Portfolio allocation;Incomplete market;Stochastic discount factor
Publication Year: 2007
Publication Date: 2007-06-30
Language: en
Type: article
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