Optimal investment with derivative securities

Aytaç Ílhan; Mattias Jonsson; Ronnie Sircar

doi:10.1007/s00780-005-0154-y

Optimal investment with derivative securities

Aytaç Ílhan, Mattias Jonsson, Ronnie Sircar

Research output: Contribution to journal › Article › peer-review

35 Scopus citations

Abstract

We consider an investor who maximizes expected exponential utility of terminal wealth, combining a static position in derivative securities with a traditional dynamic trading strategy in stocks. Our main result, obtained by studying the strict concavity of the utility-indifference price as a function of the static positions, is that, in a quite general incomplete arbitrage-free market, there exists a unique optimal strategy for the investor.

Original language	English (US)
Pages (from-to)	585-595
Number of pages	11
Journal	Finance and Stochastics
Volume	9
Issue number	4
DOIs	https://doi.org/10.1007/s00780-005-0154-y
State	Published - Oct 2005

All Science Journal Classification (ASJC) codes

Statistics and Probability
Finance
Statistics, Probability and Uncertainty

Keywords

Convex duality
Incomplete markets
Indifference price
Utility maximization

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10.1007/s00780-005-0154-y

Cite this

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abstract = "We consider an investor who maximizes expected exponential utility of terminal wealth, combining a static position in derivative securities with a traditional dynamic trading strategy in stocks. Our main result, obtained by studying the strict concavity of the utility-indifference price as a function of the static positions, is that, in a quite general incomplete arbitrage-free market, there exists a unique optimal strategy for the investor.",

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T1 - Optimal investment with derivative securities

AU - Ílhan, Aytaç

AU - Jonsson, Mattias

AU - Sircar, Ronnie

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N2 - We consider an investor who maximizes expected exponential utility of terminal wealth, combining a static position in derivative securities with a traditional dynamic trading strategy in stocks. Our main result, obtained by studying the strict concavity of the utility-indifference price as a function of the static positions, is that, in a quite general incomplete arbitrage-free market, there exists a unique optimal strategy for the investor.

AB - We consider an investor who maximizes expected exponential utility of terminal wealth, combining a static position in derivative securities with a traditional dynamic trading strategy in stocks. Our main result, obtained by studying the strict concavity of the utility-indifference price as a function of the static positions, is that, in a quite general incomplete arbitrage-free market, there exists a unique optimal strategy for the investor.

KW - Convex duality

KW - Incomplete markets

KW - Indifference price

KW - Utility maximization

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JO - Finance and Stochastics

JF - Finance and Stochastics

IS - 4

ER -

Optimal investment with derivative securities

Abstract

All Science Journal Classification (ASJC) codes

Keywords

Access to Document

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