Abstract

http://ssrn.com/abstract=945720
 
 

References (10)



 
 

Citations (2)



 


 



Appendix Describing the Numerical Method Used in 'When Can Life-Cycle Investors Benefit from Time-Varying Bond Risk Premia?'


Ralph S. J. Koijen


London Business School - Department of Finance; National Bureau of Economic Research (NBER)

Theo Nijman


Tilburg University - Center and Faculty of Economics and Business Administration

Bas J. M. Werker


Tilburg University - Center for Economic Research (CentER)

August 2007


Abstract:     
We rigorously explain the numerical approach used in the above-mentioned paper. The methodology is based on Brandt, Goyal, Santa-Clara, and Stroud (2005) (Review of Financial Studies) and Carroll (2006) (Economics Letters). In addition to combining these numerical techniques, we suggest two extensions. First, the approach of Brandt, Goyal, Santa-Clara, and Stroud (2005) approximates the conditional expectations encountered in optimizing the utility function via polynomial expansions in the state variables. The coefficients in these expansions are estimated using cross-sectional regressions across a set of simulated trajectories of returns and state variables. We develop an accurate approximation of these regression coefficients to facilitate fast optimization over the portfolio weights. This allows us to deal with a large number of decision variables without relying on iterative procedures. Second, to approximate the conditional expectations that lead to the optimal consumption strategy, we ensure that the approximation remains strictly positive, while keeping the approximation computationally tractable.

Number of Pages in PDF File: 14

working papers series


Download This Paper

Date posted: November 21, 2006  

Suggested Citation

Koijen, Ralph S. J. and Nijman, Theo and Werker, Bas J. M., Appendix Describing the Numerical Method Used in 'When Can Life-Cycle Investors Benefit from Time-Varying Bond Risk Premia?' (August 2007). Available at SSRN: http://ssrn.com/abstract=945720 or http://dx.doi.org/10.2139/ssrn.945720

Contact Information

Ralph S. J. Koijen (Contact Author)
London Business School - Department of Finance ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Theo E. Nijman
Tilburg University - Center and Faculty of Economics and Business Administration ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2342 (Phone)
+31 13 466 3280 (Fax)
Bas J.M. Werker
Tilburg University - Center for Economic Research (CentER) ( email )
Econometrics and Finance Group
5000 LE Tilburg
Netherlands
Feedback to SSRN


Paper statistics
Abstract Views: 1,262
Downloads: 625
Download Rank: 21,496
References:  10
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.546 seconds