Munich Personal RePEc Archive

A Proposal of Portfolio Choice for Infinitely Divisible Distributions of Assets Returns

Kliber, Pawel (2008): A Proposal of Portfolio Choice for Infinitely Divisible Distributions of Assets Returns. Published in: Foundations of Computing and Decision Sciences , Vol. 34, No. 1 (2008): pp. 43-52.

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Abstract

In the paper we present a proposal of augmenting portfolio analysis for the infinitely divisible distributions of returns - so that the prices of assets can follow Lévy processes. In this article we propose a model in which asset prices follow multidimensional Lévy process and the interdependence between assets are described by covariance and multidimensional jump measure. Then we propose to choose the optimal portfolio based on three criteria: mean return, total variance of diffusion and a measure of jump risk. We also consider augmenting this multi-criteria choice setup for the costs of possible portfolio adjustments.

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