Portfolio Selection under Multivariate Merton Model with Correlated Jump Risk
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Portfolio selection in the periodic investment of securities modeled by a multivariate Merton model with dependent jumps is considered. The optimization framework is designed to maximize expected terminal wealth when portfolio risk is measured by the Condition-Value-at-Risk (CVaR). Solving the portfolio optimization problem by Monte Carlo simulation often requires intensive and time-consuming computation; hence a faster and more efficient portfolio optimization method based on closed-form comonotonic bounds for the risk measure CVaR of the terminal wealth is proposed.
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