49 research outputs found
THE NUMÉRAIRE PROPERTY AND LONG-TERM GROWTH OPTIMALITY FOR DRAWDOWN-CONSTRAINED INVESTMENTS
© 2014 Wiley Periodicals, Inc. We consider the portfolio choice problem for a long-run investor in a general continuous semimartingale model. We combine the decision criterion of pathwise growth optimality with a flexible specification of attitude toward risk, encoded by a linear drawdown constraint imposed on admissible wealth processes. We define the constrained numéraire property through the notion of expected relative return and prove that drawdown-constrained numéraire portfolio exists and is unique, but may depend on the investment horizon. However, when sampled at the times of its maximum and asymptotically as the time-horizon becomes distant, the drawdown-constrained numéraire portfolio is given explicitly through a model-independent transformation of the unconstrained numéraire portfolio. The asymptotically growth-optimal strategy is obtained as limit of numéraire strategies on finite horizons
Local times and Tanaka--Meyer formulae for c\`adl\`ag paths
Three concepts of local times for deterministic c{\`a}dl{\`a}g paths are
developed and the corresponding pathwise Tanaka--Meyer formulae are provided.
For semimartingales, it is shown that their sample paths a.s. satisfy all three
pathwise definitions of local times and that all coincide with the classical
semimartingale local time. In particular, this demonstrates that each
definition constitutes a legit pathwise counterpart of probabilistic local
times. The last pathwise construction presented in the paper expresses local
times in terms of normalized numbers of interval crossings and does not depend
on the choice of the sequence of grids. This is a new result also for
c{\`a}dl{\`a}g semimartingales, which may be related to previous results of
Nicole El~Karoui and Marc Lemieux
Robust pricing and hedging of double no-touch options
Double no-touch options, contracts which pay out a fixed amount provided an
underlying asset remains within a given interval, are commonly traded,
particularly in FX markets. In this work, we establish model-free bounds on the
price of these options based on the prices of more liquidly traded options
(call and digital call options). Key steps are the construction of super- and
sub-hedging strategies to establish the bounds, and the use of Skorokhod
embedding techniques to show the bounds are the best possible.
In addition to establishing rigorous bounds, we consider carefully what is
meant by arbitrage in settings where there is no {\it a priori} known
probability measure. We discuss two natural extensions of the notion of
arbitrage, weak arbitrage and weak free lunch with vanishing risk, which are
needed to establish equivalence between the lack of arbitrage and the existence
of a market model.Comment: 32 pages, 5 figure
Utility theory front to back:Inferring utility from agents' choices
We pursue an inverse approach to utility theory and associated consumption and investment problems. Instead of specifying a utility function and deriving the actions of an agent, we assume that we observe the actions of the agent (i.e. consumption and investment strategies) and ask if it is possible to derive a utility function for which the observed behavior is optimal. We work in continuous time both in a deterministic and stochastic setting. In the deterministic setup, we find that there are infinitely many utility functions generating a given consumption pattern. In the stochastic setting of a geometric Brownian motion market it turns out that the consumption and investment strategies have to satisfy a consistency condition (PDE) if they are to come from a classical utility maximization problem. We show further that important characteristics of the agent such as risk attitudes (e.g., DARA) can be deduced directly from the agent's consumption and investment choices. </jats:p
Scaled penalization of Brownian motion with drift and the Brownian ascent
We study a scaled version of a two-parameter Brownian penalization model
introduced by Roynette-Vallois-Yor in arXiv:math/0511102. The original model
penalizes Brownian motion with drift by the weight process
where and
is the running maximum of the Brownian motion. It was
shown there that the resulting penalized process exhibits three distinct phases
corresponding to different regions of the -plane. In this paper, we
investigate the effect of penalizing the Brownian motion concurrently with
scaling and identify the limit process. This extends a result of Roynette-Yor
for the case to the whole parameter plane and reveals two
additional "critical" phases occurring at the boundaries between the parameter
regions. One of these novel phases is Brownian motion conditioned to end at its
maximum, a process we call the Brownian ascent. We then relate the Brownian
ascent to some well-known Brownian path fragments and to a random scaling
transformation of Brownian motion recently studied by Rosenbaum-Yor.Comment: 32 pages; made additions to Section
Patterns in random walks and Brownian motion
We ask if it is possible to find some particular continuous paths of unit
length in linear Brownian motion. Beginning with a discrete version of the
problem, we derive the asymptotics of the expected waiting time for several
interesting patterns. These suggest corresponding results on the
existence/non-existence of continuous paths embedded in Brownian motion. With
further effort we are able to prove some of these existence and non-existence
results by various stochastic analysis arguments. A list of open problems is
presented.Comment: 31 pages, 4 figures. This paper is published at
http://link.springer.com/chapter/10.1007/978-3-319-18585-9_
Robust pricing and hedging under trading restrictions and the emergence of local martingale models
An Investigation of Loneliness and Perceived Social Support Among Single and Partnered Young Adults
The robust superreplication problem: a dynamic approach
In the frictionless discrete time financial market of Bouchard and Nutz [Ann. Appl. Probab., 25 (2015), pp. 823--859] we consider a trader who is required to hedge in a risk-conservative way relative to a family of probability measures . We first describe the evolution of ---the superhedging price at time of the liability at maturity ---via a dynamic programming principle, show that can be seen as a concave envelope of evaluated at today's prices, and prove its dual characterization. Under suitable assumptions, we show that the robust superreplication price is equal to the classical -superhedging price for an extreme prior . Then we consider an optimal investment problem for the trader who is rolling over her robust superhedge and phrase this as a robust maximization problem, where the expected utility of intertemporal consumption is optimized subject to a robust superhedging constraint. This utility maximization is carried out under a subset of representing the trader's subjective views on market dynamics. Under suitable assumptions on the trader's utility functions, we show that optimal investment and consumption strategies exist and further specify when, and in what sense, these may be unique