Numerical approximations of optimal portfolios in mispriced asymmetric Lévy markets

نویسندگان

  • Winston S. Buckley
  • Hongwei Long
  • Mario Marshall
چکیده

We present numerical approximations of optimal portfolios in mispriced Lévy markets under asymmetric information for informed and uninformed investors having logarithmic preference. We apply our numerical scheme to Kou (2002) jump-diffusion markets by deriving analytic formulas for the first two derivatives of the underlying portfolio objective function which depend only on the Lévy measure of the jump-generating process. Optimal portfolios are then simulated using the Box–Muller algorithm, Newton’s method and incomplete Beta functions. Convergence dynamics and trajectories of sample paths of optimal portfolios for both investors are presented at different levels of information asymmetry, mispricing, horizon, asymmetry in the Kou density, jump intensity, volatility, mean-reversion speed, and Sharpe ratios. We also apply the proposed Newton’s algorithm to compute optimal portfolios for investors in Variance Gamma markets via instantaneous centralized moments of returns. © 2016 Elsevier B.V. All rights reserved. i m s t i h T o r i r I t ( t h

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عنوان ژورنال:
  • European Journal of Operational Research

دوره 252  شماره 

صفحات  -

تاریخ انتشار 2016