Worst-case optimal investment with a random number of crashes
Artikel i vetenskaplig tidskrift, 2014

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. © 2014 Elsevier B.V.

Market crashes

Worst-case scenario

Financial bubbles

Optimal investment

Författare

C. Belak

Sören Christensen

O. Menkens

Statistics and Probability Letters

0167-7152 (ISSN)

Vol. 90 140-148

Ämneskategorier

Sannolikhetsteori och statistik

DOI

10.1016/j.spl.2014.03.021