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Type: Journal article
Title: Strategic asset allocation under a fractional hidden markov model
Author: Elliott, R.
Siu, T.
Citation: Methodology and Computing in Applied Probability, 2014; 16(3):609-626
Publisher: Kluwer Academic Publishers
Issue Date: 2014
ISSN: 1387-5841
Statement of
Robert J. Elliott, Tak Kuen Siu
Abstract: Strategic asset allocation is discussed in a discrete-time economy, where the rates of return from asset classes are explained in terms of some observable and hidden factors. We extend the existing models by incorporating long-term memory in the rates of return and observable economic factors, which have been documented in the empirical literature. Hidden factors are described by a discrete-time, finite-state, hidden Markov chain noisily observed in a fractional Gaussian process. The strategic asset allocation problem is discussed in a mean-variance utility framework. Filtering and parameter estimation are also considered in the hybrid model.
Keywords: Strategic asset allocation
Long memory
Hidden Markov models
Fractional Gaussian VAR process
Mean-variance utility
Rights: © Springer Science+Business Media New York 2013
DOI: 10.1007/s11009-012-9318-3
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Mathematical Sciences publications

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