International portfolio choice under multi-factor stochastic volatility

References

• Ang, A. and Bekaert, G., International asset allocation with regime shifts. Rev. Financ. Stud., 2002, 15(4), 1137–1187.
   Web of Science ®Google Scholar
• Andersen, T., Fusari, N. and Todorov, V., The risk premia embedded in index options. J. Financ. Econ., 2015, 117(3), 558–584.
   Web of Science ®Google Scholar
• Ball, C. and Torous, W., Stochastic correlation across international stock markets. J. Empir. Finance, 2000, 7(3-4), 373–388.
   Google Scholar
• Bakshi, G., Cao, C. and Chen, Z., Empirical performance of alternative option pricing models. J. Finance., 1997, 52(5), 2003–2049.
   Web of Science ®Google Scholar
• Bessembinder, H., Bid-ask spreads in the interbank foreign exchange markets. J. Financ. Econ., 1994, 35(3), 317–348.
   Web of Science ®Google Scholar
• Bäuerle, N. and Li, Z., Optimal portfolios for financial markets with wishart volatility. J. Appl. Probab., 2013, 50(4), 1025–1043.
   Web of Science ®Google Scholar
• Björk, T., Arbitrage Theory in Continuous Time, 3rd ed, 2009 (Oxford University Press: New York).
   Google Scholar
• Branger, N. and Muck, M., Keep on smiling? The pricing of quanto options when all covariances are stochastic. J. Bank. Finance, 2012, 36(6), 1577–1591.
   Web of Science ®Google Scholar
• Black, F., Studies in stock price volatility changes. Proceedings of the 1976 Business Meeting of the Business and Economic Statistics Section, American Statistical Association, pp. 177–181, 1976.
   Google Scholar
• Buraschi, A., Porchia, P. and Trojani, F., Correlation risk and optimal portfolio choice. J. Finance., 2010, 65(1), 393–420.
   Web of Science ®Google Scholar
• Campa, J.M. and Chang, P.H., The forecasting ability of correlations implied in foreign exchange options. J. Int. Money. Finance., 1998, 17(6), 855–880.
   Web of Science ®Google Scholar
• Carr, P. and Madan, D., Option valuation using the FFT. J. Comput. Finance, 1999, 2, 61–73.
   Google Scholar
• Carr, P. and Wu, L., Stochastic skew in currency options. J. Financ. Econ., 2007, 86(1), 213–247.
   Web of Science ®Google Scholar
• Carr, P. and Wu, L., Leverage effect, volatility feedback, and self-exciting market disruptions. J. Financ. Quant. Anal., 2017, 52(5), 2119–2156.
   Web of Science ®Google Scholar
• Carrasco, M. and Florens, J.P., Generalization of GMM to a continuum of moment conditions. Econ. Theory., 2000, 16(6), 797–834.
   Web of Science ®Google Scholar
• Carrasco, M., Chernov, M., Florens, J. and Ghysels, E., Efficient estimation of general dynamic models with a continuum of moment conditions. J. Econom., 2007, 140(2), 529–573.
   Web of Science ®Google Scholar
• Christoffersen, P., Heston, S. and Jacobs, K., The shape and term structure of the index option smirk: Why multifactor stochastic volatility models work so well. Manage. Sci., 2009, 55(12), 1914–1932.
   Web of Science ®Google Scholar
• Chacko, G. and Viceira, L.M., Spectral GMM estimation of continuous-time processes. J. Econom., 2003, 116(1–2), 259–292.
   Web of Science ®Google Scholar
• Cox, J. and Ross, S., The valuation of options for alternative stochastic processes. J. Financ. Econ., 1976, 3(1-2), 145–166.
   Web of Science ®Google Scholar
• Da Fonseca, J. and Grasselli, M., Riding on the smiles. Quant. Finance, 2011, 11(11), 1609–1632.
   Web of Science ®Google Scholar
• Da Fonseca, J., Grasselli, M. and Ielpo, F., Hedging (Co)Variance risk with variance swaps. Int. J. Theor. Appl. Finance, 2011, 14(6), 899–943.
   Google Scholar
• Da Fonseca, J., Grasselli, M. and Ielpo, F., Estimating the wishart affine stochastic correlation model using the empirical characteristic function. Stud. Nonlinear Dyn. Econom., 2014, 18(3), 253–289.
   Web of Science ®Google Scholar
• Das, S.R. and Uppal, R., Systemic risk and international portfolio choice. J. Finance., 2004, 59(6), 2809–2834.
   Web of Science ®Google Scholar
• De Col, A., Gnoatto, A. and Grasselli, M., Smiles all around: FX joint calibration in A multi-Heston model. J. Bank. Finance, 2013, 37(10), 3799–3818.
   Web of Science ®Google Scholar
• Diebold, F.X. and Nerlove, M., The dynamics of exchange rate volatility: A multivariate latent factor ARCH model. J. Appl. Econom., 1989, 4(1), 1–21.
   Web of Science ®Google Scholar
• Egloff, D., Leippold, M. and Wu, L., The term structure of variance swap rates and optimal variance swap investments. J. Financ. Quant. Anal., 2010, 45(5), 1279–1310.
   Web of Science ®Google Scholar
• Engel, C. and Matsumoto, A., The international diversification puzzle when goods prices are sticky: It's really about exchange-Rate hedging, not equity portfolios. Am. Econ. J. Macroecon., 2009, 1(2), 155–188.
   Web of Science ®Google Scholar
• Escobar, M. and Gschnaidtner, C., Parameters recovery via calibration in the heston model: A comprehensive review. Wilmott, 2016, 86, 60–81.
   Google Scholar
• Escobar, M. and Gschnaidtner, C., A multivariate stochastic volatility model with applications in the foreign exchange market. Rev Deriv. Res., 2018, 21(1), 1–43.
   Web of Science ®Google Scholar
• Escobar, M. and Olivares, P., Pricing of mountain range derivatives under a principal component stochastic volatility model. Appl. Stoch. Models. Bus. Ind., 2013, 29(1), 31–44.
   Web of Science ®Google Scholar
• Escobar, M., Götz, B., Seco, L. and Zagst, R., Pricing of a CDO on stochastically correlated underlyings. Quant. Finance, 2010, 10(3), 265–277.
   Web of Science ®Google Scholar
• Escobar, M., Rudolph, B. and Zagst, R., Algorithm 963: Estimation of stochastic covariance models using a continuum of moment conditions. ACM Trans. Math. Softw., 2016, 42(4), 33, 1–26.
   Web of Science ®Google Scholar
• Fama, E.F., Forward and spot exchange rates. J. Monet. Econ., 1984, 14(3), 319–338.
   Web of Science ®Google Scholar
• Fiorentini, G., León, A. and Rubio, G., Estimation and empirical performance of Heston's stochastic volatility model: The case of a thinly traded market. J. Empir. Finance, 2002, 9(2), 225–255.
   Google Scholar
• Hau, H. and Rey, H., Exchange rates, equity prices, and capital flows. Rev. Financ. Stud., 2006, 19(1), 273–317.
   Web of Science ®Google Scholar
• Heston, S., A closed-form solution for options with stochastic volatility with applications to bonds and currency options. Rev. Financ. Stud., 1993, 6(2), 327–343.
   Web of Science ®Google Scholar
• Jiang, G.J. and Knight, J.L., Estimation of continuous-time processes via the empirical characteristic function. J. Bus. Econ. Stat., 2002, 20(2), 198–212.
   Web of Science ®Google Scholar
• Larsen, L., Optimal investment strategies in an international economy with stochastic interest rates. Int. Rev. Econ. Finance, 2010, 19(1), 145–165.
   Web of Science ®Google Scholar
• Larsen, L. and Munk, C., The cost of suboptimal dynamic asset allocation: General results and applications to interest rate risk, stock volatility risk, and growth/value tilts. J. Econ. Dyn. Control, 2012, 36(2), 266–293.
   Web of Science ®Google Scholar
• Levy, H. and Lim, K.C., Forward exchange bias, hedging and the gains from international diversification of investment portfolios. J. Int. Money Finance, 1994, 13(2), 159–170.
   Web of Science ®Google Scholar
• Li, J. and Zinna, G., The variance risk premium: Components, term structures, and stock return predictability. J. Bus. Econ. Stat., 2018, 36(3), 411–425.
   Web of Science ®Google Scholar
• Lioui, A. and Poncet, P., International asset allocation: A new perspective. J. Bank. Finance, 2003, 27(11), 2203–2230.
   Web of Science ®Google Scholar
• Liu, J., Portfolio selection in stochastic environments. Rev. Financ. Stud., 2007, 20(1), 1–39.
   Web of Science ®Google Scholar
• Liu, J. and Pan, J., Dynamic derivative strategies. J. Financ. Econ., 2003, 69(3), 401–430.
   Web of Science ®Google Scholar
• Longin, F. and Solnik, B., Is the correlation in international equity returns constant: 1960–1990?. J. Int. Money. Finance., 1995, 14(1), 3–26.
   Web of Science ®Google Scholar
• Merton, R., Optimum consumption and portfolio rules in a continuous-Time model. J. Econ. Theory., 1971, 3(4), 373–413.
   Web of Science ®Google Scholar
• Roll, R., The international crash of October 1987. Financ. Anal. J., 1988, 44(5), 19–35.
   Google Scholar
• Santis, G. and Gerard, B., International asset pricing and portfolio diversification with time-Varying risk. J. Finance, 1997, 52(5), 1881–1912.
   Web of Science ®Google Scholar
• Singleton, K., Estimation of affine asset pricing models using the empirical characteristic function. J. Econom., 2001, 102(1), 111–141.
   Web of Science ®Google Scholar
• Zhang, J. and Shu, J., Pricing S&P 500 index options with Heston's model. Proceedings IEEE International Conference on Computational Intelligence for Financial Engineering, pp. 85–92, 2003.
   Google Scholar