Dynamic asset allocation in a mean-variance framework

Article Abstract:

A study was conducted to examine portfolio strategies that support mean-variance efficiency during continuous rebalancing between the current date and horizon. The study utilized a portfolio that optimized the anticipated logarithm of wealth as numeraire. Markets were assumed to be continuously open between current data and horizon. It was also assumed that transactions were frictionless and that the markets were free of arbitrage. A dynamic strategy supporting buy and hold combinations was then derived for specific price processes. In addition, the dynamic efficient frontier in the standard deviation-expected return space was determined. Results indicated that market portfolio is not mean-variance efficient during continuous rebalancing.

Portfolio Management, Financial Management, Research

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Mean lower partial moment valuation and lognormally distributed returns

Article Abstract:

A capital asset pricing model is developed within the framework of a mean lower partial moment. Partial moments of a risky portfolio are computed to yield a two-fund portfolio divided between riskless and risky assets. Risk is measured into semideviation and semivariance. Semideviation refers to second degree stochastic dominance and semivariance refers to third degree stochastic dominance. When returns on investment are lognormally distributed, the new mean lower partial moment valuation specializes to the mean-logarithmic variance capital asset pricing model.

Analysis, Investment analysis, Securities analysis, Capital assets pricing model, Capital asset pricing model

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The valuation and analysis of adjustable rate mortgages

Article Abstract:

Standard valuation techniques are inadequate for valuing the payoffs of securities for which the payoff is the result of the function of underlying state variables. The addition of a single state variable can solve such problems despite a potential dependence on a finite state variable. The example of an adjustable rate mortgage (ARM) with yearly and lifetime caps is used to illustrate the technique. The valuation procedure splits the ARM into two assets, the promised stream of payments and the prepayment option.

Mortgages, Adjustable rate mortgages

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