Strategic Asset Allocation in a Continuous-Time VAR Model

24 Pages Posted: 24 Oct 2002

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

George Chacko

Santa Clara University - Finance Department

Jorge F. Rodriguez

Merrill Lynch

Luis M. Viceira

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2002

Abstract

This note derives an approximate solution to a continuous-time intertemporal portfolio and consumption choice problem. The problem is the continuous-time equivalent of the discrete-time problem studied by Campbell and Viceira (1999), in which the expected excess return on a risky asset follows an AR(1) process, while the riskless interest rate is constant. The note also shows how to obtain continuous-time parameters that are consistent with discrete-time econometric estimates. The continuous-time solution is numerically close to that of Campbell and Viceira and has the property that conservative long-term investors have a large positive intertemporal hedging demand for stocks.

JEL Classification: G12

Suggested Citation

Campbell, John Y. and Chacko, George and Rodriguez, Jorge F. and Viceira, Luis M., Strategic Asset Allocation in a Continuous-Time VAR Model (September 2002). Harvard Institute Reseach Working Paper No. 1973. Available at SSRN: https://ssrn.com/abstract=343783 or http://dx.doi.org/10.2139/ssrn.343783

John Y. Campbell (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Room 213
Cambridge, MA 02138
United States
617-496-6448 (Phone)
617-495-7730 (Fax)

HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George Chacko

Santa Clara University - Finance Department ( email )

Santa Clara, CA 95053
United States

Jorge F. Rodriguez

Merrill Lynch ( email )

Metro Office Park, 15 2nd St
Millennium Park Plaza, Suite 210
Guaynabo, 00968
Puerto Rico
787-242-0792 (Phone)

Luis M. Viceira

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6331 (Phone)
617-496-6592 (Fax)

HOME PAGE: http://www.people.hbs.edu/lviceira

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
781
Abstract Views
3,735
rank
26,620
PlumX Metrics