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 )

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National Bureau of Economic Research (NBER)

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George Chacko

Santa Clara University - Finance Department ( email )

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Jorge F. Rodriguez

Merrill Lynch ( email )

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Luis M. Viceira

Harvard Business School - Finance Unit ( email )

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617-496-6592 (Fax)

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

National Bureau of Economic Research (NBER)

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