- Essays on international portfolio choice and asset pricing under financial contagion
R. van den Goorbergh
- Award date
- 21 June 2017
- Number of pages
- 978 90 3610 485 2
- Document type
- PhD thesis
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
The 2008 financial crisis has witnessed prices of assets traded on different exchange markets, of various asset classes, from different geographical locations plunge simultaneously or in close succession, causing serious problems for banks, insurance companies, and other financial institutions. It calls for models that account for the unconventional dependence structure of asset prices beyond the classical paradigm.
The class of mutually exciting jump-diffusion processes is a promising workhorse for modeling financial contagion in continuous-time finance. The class provides a parsimonious model of jump propagation, allowing for cross-sectional asymmetry and serial dependence through time: a jump that takes place in one asset market today leads to a higher probability of experiencing future jumps in the same market as well as in other markets around the world.
This thesis tries to reconsider some of the classical problems in finance, most noticeably asset pricing, portfolio choice, hedging, and valuation, in the presence of contagion. We show that many investment and risk management implications and market efficiency conditions derived from classical models are no longer valid in the context of financial contagion.
- The Tinbergen Institute research series no. 695.
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