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Article: A martingale approach for asset allocation with derivative security and hidden economic risk

TitleA martingale approach for asset allocation with derivative security and hidden economic risk
Authors
KeywordsAsset allocation
Derivatives
Filtering
Malliavin calculus
Issue Date2019
PublisherCambridge 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?
AbstractAsset 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 Identifierhttp://hdl.handle.net/10722/288163
ISSN
2019 Impact Factor: 0.577
2015 SCImago Journal Rankings: 0.742
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorSiu, TK-
dc.contributor.authorZhu, J-
dc.contributor.authorYang, H-
dc.date.accessioned2020-10-05T12:08:48Z-
dc.date.available2020-10-05T12:08:48Z-
dc.date.issued2019-
dc.identifier.citationJournal of Applied Probability, 2019, v. 56 n. 3, p. 723-749-
dc.identifier.issn0021-9002-
dc.identifier.urihttp://hdl.handle.net/10722/288163-
dc.description.abstractAsset 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.languageeng-
dc.publisherCambridge University Press. The Journal's web site is located at https://www.cambridge.org/core/journals/journal-of-applied-probability-
dc.relation.ispartofJournal of Applied Probability-
dc.rightsJournal of Applied Probability. Copyright © Cambridge University Press.-
dc.rightsThis 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.subjectAsset allocation-
dc.subjectDerivatives-
dc.subjectFiltering-
dc.subjectMalliavin calculus-
dc.titleA martingale approach for asset allocation with derivative security and hidden economic risk-
dc.typeArticle-
dc.identifier.emailYang, H: hlyang@hku.hk-
dc.identifier.authorityYang, H=rp00826-
dc.description.naturepostprint-
dc.identifier.doi10.1017/jpr.2019.40-
dc.identifier.scopuseid_2-s2.0-85072829099-
dc.identifier.hkuros314967-
dc.identifier.volume56-
dc.identifier.issue3-
dc.identifier.spage723-
dc.identifier.epage749-
dc.identifier.isiWOS:000488778100004-
dc.publisher.placeUnited Kingdom-
dc.identifier.issnl0021-9002-

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