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- Title
Optimal Investment for Worst-Case Crash Scenarios: A Martingale Approach.
- Authors
Seifried, Frank Thomas
- Abstract
We investigate the optimal portfolio problem under the threat of a financial market crash in a multidimensional jump-diffusion framework. We set up a nonprobabilistic crash model and consider an investor that seeks to maximize CRRA utility in the worst possible crash scenario. We recast the problem as a stochastic differential game; with the help of the fundamental notion of indifference strategies, we completely solve the portfolio problem using martingale arguments.
- Subjects
FINANCIAL crises; MARTINGALES (Mathematics); STOCHASTIC processes; DIFFERENTIAL games; OPERATIONS research
- Publication
Mathematics of Operations Research, 2010, Vol 35, Issue 3, p559
- ISSN
0364-765X
- Publication type
Article
- DOI
10.1287/moor.1100.0459