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Worst-case optimal investment with a random number of crashes

Belak, Christoph, Christensen, Sören and Menkens, Olaf (2014) Worst-case optimal investment with a random number of crashes. Statistics and Probability Letters, 90 . pp. 140-148. ISSN 0167-7152

Abstract
We study a portfolio optimization problem in a market which is under the threat of crashes. At random times, the investor receives a warning that a crash in the risky asset might occur. We construct a strategy which renders the investor indifferent about an immediate crash of maximum size and no crash at all. We then verify that this strategy outperforms every other trading strategy using a direct comparison approach. We conclude with numerical examples and calculating the costs of hedging against crashes.
Metadata
Item Type:Article (Published)
Refereed:Yes
Uncontrolled Keywords:Optimal investment; Market crashes; Worst-case scenario; Financial bubbles
Subjects:Business > Finance
Mathematics > Economics, Mathematical
Mathematics > Applied Mathematics
DCU Faculties and Centres:DCU Faculties and Schools > Faculty of Science and Health > School of Mathematical Sciences
Publisher:Elsevier
Official URL:http://dx.doi.org/10.1016/j.spl.2014.03.021
Copyright Information:© 2014 Elsevier
Use License:This item is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 3.0 License. View License
Funders:SFI
ID Code:19936
Deposited On:06 May 2014 13:38 by Olaf Menkens . Last Modified 19 Jul 2018 15:03
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