TY  - JOUR
AU  - Liu, Jun
AU  - Longstaff, Francis A
AU  - Pan, Jun
TI  - Dynamic Asset Allocation With Event Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9103
PY  - 2002
Y2  - August 2002
DO  - 10.3386/w9103
UR  - http://www.nber.org/papers/w9103
L1  - http://www.nber.org/papers/w9103.pdf
N1  - Author contact info:
Jun Liu
Rady School of Management
UCSD
Pepper Canyon Hall Room 320
9500 Gilman Dr MC 0093
La Jolla CA 92093
Tel: 310/825-4083
E-Mail: junliu@ucsd.edu

Francis Longstaff
UCLA
Anderson Graduate School of Management
110 Westwood Plaza, Box 951481
Los Angeles, CA  90095-1481
Tel: 310/825-2218
Fax: 310/206-5455
E-Mail: francis.longstaff@anderson.ucla.edu

Jun Pan
MIT Sloan School of Management
100 Main Street, E62-624
Cambridge, MA 02142
Tel: 617/253-3083
Fax: 617/258-6855
E-Mail: junpan@mit.edu
AB  - Major events often trigger abrupt changes in stock prices and volatility. We study the implications of jumps in prices and volatility on investment strategies. Using the event-risk framework of Duffie, Pan, and Singleton (2000), we provide analytical solutions to the optimal portfolio problem. Event risk dramatically affects the optimal strategy. An investor facing event risk is less willing to take leveraged or short positions. The investor acts as if some portion of his wealth may become illiquid and the optimal strategy blends both dynamic and buy-and-hold strategies. Jumps in prices and volatility both have important effects.
ER  -