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Jump-Diffusion Risk-Sensitive Asset Management I: Diffusion Factor Model
Mark Davis / Sebastien Lleo
brownian motion / optimizationResource overview

Jump-Diffusion Risk-Sensitive Asset Management I: Diffusion Factor Model

Paper2010

by Mark Davis, Sebastien Lleo

Tags
brownian motionoptimizationpartial differential equationsportfolio managementstochastic calculusstochastic differential equationsstochastic processes

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Understand this paper

Suggested foundations for stochastic processes and pricing and asset pricing and factor research. Specialist prerequisites vary by paper.

Before you read

  1. Conditional Expectation

    Understand what it means to condition on current information.

  2. Stochastic Processes, Brownian Motion and Itô's Lemma

    Follow Brownian dynamics and the second-order term in Itô calculus.

  3. Linear Regression

    Interpret exposures, residuals and uncertainty in fitted coefficients.

  4. Financial Return Characteristics

    Work with returns and recognise their empirical limitations.

Go further

  1. Market Model and Risk-Neutral Valuation

    Connect stochastic dynamics to no-arbitrage prices.

  2. Simulating SDEs

    Translate continuous dynamics into a numerical experiment.

  3. Factor construction

    Connect factor definitions to portfolio construction.

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Lesson links open public previews. Access to full lessons depends on the topic and your membership.

Explore Derivatives Pricing and Computational Finance Explore Empirical Asset Pricing and Factor Investing

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