Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88730
Authors: 
Branger, Nicole
Kraft, Holger
Meinerding, Christoph
Year of Publication: 
2013
Series/Report no.: 
SAFE Working Paper Series 28
Abstract: 
This paper compares two classes of models that allow for additional channels of correlation between asset returns: regime switching models with jumps and models with contagious jumps. Both classes of models involve a hidden Markov chain that captures good and bad economic states. The distinctive feature of a model with contagious jumps is that large negative returns and unobservable transitions of the economy into a bad state can occur simultaneously. We show that in this framework the filtered loss intensities have dynamics similar to self-exciting processes. Besides, we study the impact of unobservable contagious jumps on optimal portfolio strategies and filtering.
Subjects: 
Asset Allocation
Contagion
Nonlinear Filtering
Hidden State
Selfexciting Processes
JEL: 
G01
G11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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