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| Tekijä: | Lioui, A. Poncet, P. |
| Otsikko: | International asset allocation: A new perspective |
| Lehti: | Journal of Banking and Finance
2003 : NOV, VOL 27:11, p. 2203-2230 |
| Asiasana: | Markets Prices Interest rates Currency Risk Theories Models International |
| Vapaa asiasana: | Portfolio theory |
| Kieli: | eng |
| Tiivistelmä: | This paper considers an international economy where the purchasing power parity (PPP) is violated and financial asset returns and exchange rates follow, in real terms, general diffusion processes driven by K state variables. A country-specific representative individual trades on available assets to maximize the expected utility of her final consumption. Her optimal strategy is shown to contain, in addition to the usual speculative component, only two hedging components, however large is K. The first one is associated with domestic interest rate risk and the second one with the risk brought about by the co-movements of the interest rates and the market prices of risk. The implementation of the strategy thus is much easier than with the traditional Merton decomposition. |
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