We develop a model of international portfolio choice in complete and incomplete markets with stochastic covariance between financial asset returns and exchange rates. The optimal investment strategies are derived in closed form. We estimate the model parameters and illustrate the optimal...

The problem of optimal wealth allocation is solved under the assumptions that interest rates are stochastic and stock returns are predictable with observed and unobserved factors. The stock risk premium is taken to be an affine function of the predictive variables and the stock return volatility...

This paper develops an approximate closed-form optimal portfolio allocation formula for a spot asset whose variance follows a GARCH(1,1) process. We consider an investor with constant relative risk aversion (CRRA) utility who wants to maximize the expected utility from terminal wealth under a...