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Crash hedging strategies and worst–case scenario portfolio optimization

Menkens, Olaf (2006) Crash hedging strategies and worst–case scenario portfolio optimization. International Journal of Theoretical and Applied Finance, 9 (4). pp. 597-618. ISSN 0219-0249

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Abstract

Crash hedging strategies are derived as solutions of non–linear differential equations which itself are consequences of an equilibrium strategy which make the investor indifferent to uncertain (down) jumps. This is done in the situation where the investor has a logarithmic utility and where the market coefficients after a possible crash may change. It is scrutinized when and in which sense the crash hedging strategy is optimal. The situation of an investor with incomplete information is considered as well. Finally, introducing the crash horizon, an implied volatility is derived.

Item Type:Article (Published)
Refereed:Yes
Uncontrolled Keywords:Optimal portfolios; crash modelling; worst–case scenario; changing market coefficients; implied volatility; crash horizon;
Subjects:Mathematics
DCU Faculties and Centres:DCU Faculties and Schools > Faculty of Science and Health > School of Mathematical Sciences
Publisher:World Scientific Publishing
Official URL:http://dx.doi.org/10.1142/S0219024906003706
Copyright Information:© World Scientific Publishing Co. Pte. Ltd.
Use License:This item is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 3.0 License. View License
ID Code:506
Deposited On:18 Jun 2008 by DORAS Administrator. Last Modified 16 Feb 2009 14:50

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