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Article: A martingale approach for asset allocation with derivative security and hidden economic risk
Title | A martingale approach for asset allocation with derivative security and hidden economic risk |
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Authors | |
Keywords | Asset allocation Derivatives Filtering Malliavin calculus |
Issue Date | 2019 |
Publisher | Cambridge University Press. The Journal's web site is located at https://www.cambridge.org/core/journals/journal-of-applied-probability |
Citation | Journal of Applied Probability, 2019, v. 56 n. 3, p. 723-749 How to Cite? |
Abstract | Asset allocation with a derivative security is studied in a hidden, Markovian regime-switching, economy using filtering theory and the martingale approach. A generalized delta-hedged ratio and a generalized elasticity of an option are introduced to accommodate the presence of the information state process and the derivative security. Malliavin calculus is applied to derive a solution for a general utility function which includes an exponential utility, a power utility, and a logarithmic utility. A compact solution is obtained for a logarithmic utility. Some economic implications of the solutions are discussed. |
Persistent Identifier | http://hdl.handle.net/10722/288163 |
ISSN | 2023 Impact Factor: 0.7 2023 SCImago Journal Rankings: 0.551 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Siu, TK | - |
dc.contributor.author | Zhu, J | - |
dc.contributor.author | Yang, H | - |
dc.date.accessioned | 2020-10-05T12:08:48Z | - |
dc.date.available | 2020-10-05T12:08:48Z | - |
dc.date.issued | 2019 | - |
dc.identifier.citation | Journal of Applied Probability, 2019, v. 56 n. 3, p. 723-749 | - |
dc.identifier.issn | 0021-9002 | - |
dc.identifier.uri | http://hdl.handle.net/10722/288163 | - |
dc.description.abstract | Asset allocation with a derivative security is studied in a hidden, Markovian regime-switching, economy using filtering theory and the martingale approach. A generalized delta-hedged ratio and a generalized elasticity of an option are introduced to accommodate the presence of the information state process and the derivative security. Malliavin calculus is applied to derive a solution for a general utility function which includes an exponential utility, a power utility, and a logarithmic utility. A compact solution is obtained for a logarithmic utility. Some economic implications of the solutions are discussed. | - |
dc.language | eng | - |
dc.publisher | Cambridge University Press. The Journal's web site is located at https://www.cambridge.org/core/journals/journal-of-applied-probability | - |
dc.relation.ispartof | Journal of Applied Probability | - |
dc.rights | Journal of Applied Probability. Copyright © Cambridge University Press. | - |
dc.rights | This article has been published in a revised form in Journal of Applied Probability [http://doi.org/10.1017/jpr.2019.40]. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © Cambridge University Press. | - |
dc.subject | Asset allocation | - |
dc.subject | Derivatives | - |
dc.subject | Filtering | - |
dc.subject | Malliavin calculus | - |
dc.title | A martingale approach for asset allocation with derivative security and hidden economic risk | - |
dc.type | Article | - |
dc.identifier.email | Yang, H: hlyang@hku.hk | - |
dc.identifier.authority | Yang, H=rp00826 | - |
dc.description.nature | postprint | - |
dc.identifier.doi | 10.1017/jpr.2019.40 | - |
dc.identifier.scopus | eid_2-s2.0-85072829099 | - |
dc.identifier.hkuros | 314967 | - |
dc.identifier.volume | 56 | - |
dc.identifier.issue | 3 | - |
dc.identifier.spage | 723 | - |
dc.identifier.epage | 749 | - |
dc.identifier.isi | WOS:000488778100004 | - |
dc.publisher.place | United Kingdom | - |
dc.identifier.issnl | 0021-9002 | - |