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) |
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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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