Optimal Portfolio Choice And The Valuation Of Illiquid Securities PDF Download
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Author | : Francis A. Longstaff |
Publisher | : |
Total Pages | : |
Release | : 2001 |
Genre | : |
ISBN | : |
Download Optimal Portfolio Choice and the Valuation of Illiquid Securities Book in PDF, ePub and Kindle
Traditional models of portfolio choice assume that investors can continuously trade unlimited amounts of securities. In reality, investors face liquidity constraints. We analyze a model where investors are restricted to trading strategies that are of bounded variation. An investor facing this type of illiquidity behaves very differently from an unconstrained investor. A liquidity-constrained investor endogenously acts as if he faced borrowing and short-selling constraints, and may take riskier positions than in liquid markets. We solve for the shadow cost of illiquidity and show that large price discounts can be sustained in a rational model.
Author | : Claudio Tebaldi |
Publisher | : |
Total Pages | : 66 |
Release | : 2010 |
Genre | : |
ISBN | : |
Download Illiquid Assets and Optimal Portfolio Choice Book in PDF, ePub and Kindle
The presence of illiquid assets, such as human wealth or a family owned business, complicates the problem of portfolio choice. This paper is concerned with the problem of optimal asset allocation and consumption in a continuous time model when one asset cannot be traded. This illiquid asset, which depends on an uninsurable source of risk, provides a liquid dividend. In the case of human capital we can think about this dividend as labor income. The agent is endowed with a given amount of the illiquid asset and with some liquid wealth which can be allocated in a market where there is a risky and a riskless asset. The main point of the paper is that the optimal allocations to the two liquid assets and consumption will critically depend on the endowment and characteristics of the illiquid asset, in addition to the preferences and to the liquid holdings held by the agent. We provide what we believe to be the first analytical solution to this problem when the agent has power utility of consumption and terminal wealth. We also derive the value that the agent assigns to the illiquid asset. The risk adjusted valuation procedure we develop can be used to value both liquid and illiquid assets, as well as contingent claims on those assets.
Author | : Miklós Koren |
Publisher | : |
Total Pages | : 40 |
Release | : 2003 |
Genre | : Asset allocation |
ISBN | : |
Download Portfolio Choice with Illiquid Assets Book in PDF, ePub and Kindle
Author | : Hans Marius Holtan |
Publisher | : |
Total Pages | : 121 |
Release | : 1997 |
Genre | : |
ISBN | : |
Download Asset Valuation and Optimal Portfolio Choice in Incomplete Markets Book in PDF, ePub and Kindle
Author | : Ping Cheng |
Publisher | : |
Total Pages | : 30 |
Release | : 2017 |
Genre | : |
ISBN | : |
Download Optimal Portfolio Selection Book in PDF, ePub and Kindle
Modern Portfolio Theory is a single-period model developed for the efficient securities market, in which asset prices are implicitly assumed to follow a random walk. It is widely agreed that real estate does not fit into the efficient market paradigm; however, mixed-asset portfolio analysis continues to rely on Modern Portfolio Theory. This paper proposes an alternative model that extends the Modern Portfolio Theory to accommodate multi-period utility maximization as well as the unique characteristics of real estate such as liquidity risk, horizon-dependence of real estate returns and high transaction cost. The model is easy to be implemented. Using real world data, it demonstrates the optimal allocation to real estate in the mixed-asset portfolio is quite in line with the reality of institutional portfolios.
Author | : John Y. Campbell |
Publisher | : OUP Oxford |
Total Pages | : 272 |
Release | : 2002-01-03 |
Genre | : Business & Economics |
ISBN | : 019160691X |
Download Strategic Asset Allocation Book in PDF, ePub and Kindle
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Author | : |
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Total Pages | : |
Release | : 1987 |
Genre | : |
ISBN | : |
Download Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods Book in PDF, ePub and Kindle
Author | : Andrew Ang |
Publisher | : |
Total Pages | : |
Release | : 2013 |
Genre | : Economics |
ISBN | : |
Download Portfolio Choice with Illiquid Assets Book in PDF, ePub and Kindle
We present a model of optimal allocation over liquid and illiquid assets, where illiquidity is the restriction that an asset cannot be traded for intervals of uncertain duration. Illiquidity leads to increased and state-dependent risk aversion, and reduces the allocation to both liquid and illiquid risky assets. Uncertainty about the length of the illiquidity interval, as opposed to a deterministic non-trading interval, is a primary determinant of the cost of illiquidity. We allow market liquidity to vary from 'snormal' periods, when all assets are fully liquid, to 'illiquidity crises,' when some assets can only be traded infrequently. The possibility of a liquidity crisis leads to limited arbitrage in normal times. Investors are willing to forego 2% of their wealth to hedge against illiquidity crises occurring once every ten years.
Author | : Yakov Amihud |
Publisher | : Now Publishers Inc |
Total Pages | : 109 |
Release | : 2006 |
Genre | : Business & Economics |
ISBN | : 1933019123 |
Download Liquidity and Asset Prices Book in PDF, ePub and Kindle
Liquidity and Asset Prices reviews the literature that studies the relationship between liquidity and asset prices. The authors review the theoretical literature that predicts how liquidity affects a security's required return and discuss the empirical connection between the two. Liquidity and Asset Prices surveys the theory of liquidity-based asset pricing followed by the empirical evidence. The theory section proceeds from basic models with exogenous holding periods to those that incorporate additional elements of risk and endogenous holding periods. The empirical section reviews the evidence on the liquidity premium for stocks, bonds, and other financial assets.
Author | : Bong-Gyu Jang |
Publisher | : |
Total Pages | : |
Release | : 2016 |
Genre | : |
ISBN | : |
Download Ambiguity and Optimal Portfolio Choice with Value-at-Risk Constraint Book in PDF, ePub and Kindle
Integrating a Value-at-Risk constraint on a fund manager's wealth and ambiguity, we present a model of optimal portfolio choice for a fund manager who allocates her wealth between risky and riskless assets. When a fund manager controls asset composition, her reactions di er with respect to an increase in only risk aversion and only ambiguity aversion. When the sum of coe cients of risk aversion and ambiguity aversion is fixed, the effect of risk aversion on risky investment dominates the effect of ambiguity aversion in that stock holdings are dramatically smaller in the absence of ambiguity aversion than in its presence.