Incorporating the Learning Effects in Hedging the Inflation Risks for Long-Term Fund Management
碩士 === 國立政治大學 === 風險管理與保險研究所 === 93 === This paper examines the optimal portfolio selection for a long-term investor. In order to consider the uncertainty of inflation rate, we extend the work in Brennan and Xia (2002) and use the consumer price index (CPI) to estimate and update the inflation rate...
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| Format: | Others |
| Language: | en_US |
| Online Access: | http://ndltd.ncl.edu.tw/handle/94461406214779990510 |
| Summary: | 碩士 === 國立政治大學 === 風險管理與保險研究所 === 93 === This paper examines the optimal portfolio selection for a long-term investor. In order to consider the uncertainty of inflation rate, we extend the work in Brennan and Xia (2002) and use the consumer price index (CPI) to estimate and update the inflation rate through the filtering mechanism. The stochastic real interest rate is assumed to follow the Vasicek-type model. The investor’s optimal portfolio selection is solved through the Martingale method. The result is given in a simple closed form solution. We show that the optimal strategy for the fund manager in hedging the inflation uncertainty is to incorporate a dynamic fixed income portfolio with different durations. Numerical illustration is provided to clarify our findings.
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