Related papers: Long-Term Growth Rate of Expected Utility for Leve…
This paper analyzes the robust long-term growth rate of expected utility and expected return from holding a leveraged exchange-traded fund (LETF). When the Markovian model parameters in the reference asset are uncertain, the robust…
The growth of the exhange-traded fund (ETF) industry has given rise to the trading of options written on ETFs and their leveraged counterparts {(LETFs)}. We study the relationship between the ETF and LETF implied volatility surfaces when…
A common belief is that leveraged ETFs (LETFs) suffer long-term performance decay due to \emph{volatility drag}. We show that this view is incomplete: LETF performance depends fundamentally on return autocorrelation and return dynamics. In…
It is common knowledge that leverage can increase the potential returns of an investment, at the expense of increased risk. For a passive investor in the stock market, leverage can be achieved using margin debt or leveraged-ETFs. We perform…
Leveraged Exchange Traded Funds (LETFs), while extremely controversial in the literature, remain stubbornly popular with both institutional and retail investors in practice. While the criticisms of LETFs are certainly valid, we argue that…
We examine strategically incorporating broad stock market leveraged exchange-traded funds (LETFs) into investment portfolios. We demonstrate that easily understandable and implementable strategies can enhance the risk-return profile of a…
This paper discusses the sensitivity of the long-term expected utility of optimal portfolios for an investor with constant relative risk aversion. Under an incomplete market given by a factor model, we consider the utility maximization…
In modern portfolio theory, the balancing of expected returns on investments against uncertainties in those returns is aided by the use of utility functions. The Kelly criterion offers another approach, rooted in information theory, that…
We study optimal investment strategies that maximize expected utility from consumption and terminal wealth in a pure-jump asset price model with Markov-modulated (regime switching) jump-size distributions. We give sufficient conditions for…
In this article, we investigate the behavior of long-term options. In many cases, option prices follow an exponential decay (or growth) rate for further maturity dates. We determine under what conditions option prices are characterized by…
A macroeconomic model based on the economic variables (i) assets, (ii) leverage (defined as debt over asset) and (iii) trust (defined as the maximum sustainable leverage) is proposed to investigate the role of credit in the dynamics of…
Multifractal processes are a relatively new tool of stock market analysis. Their power lies in the ability to take multiple orders of autocorrelations into account explicitly. In the first part of the paper we discuss the framework of the…
Daily leveraged exchange traded funds amplify gains and losses of their underlying benchmark indexes on a daily basis. The result of going long in a daily leveraged ETF for more than one day is less clear. Here, bounds are given for the…
We consider the problem of maximizing expected utility from terminal wealth in models with stochastic factors. Using martingale methods and a conditioning argument, we determine the optimal strategy for power utility under the assumption…
We review the dynamics of the returns of Leveraged Exchange Traded Funds (LETFs) and propose a new measure of realized volatility: Shortfall from Maximum Convexity. We show that SMC has a more intuitive interpretation and provides more…
We propose a comprehensive treatment of the leverage effect, i.e. the relationship between returns and volatility of a specific asset, focusing on energy commodities futures, namely Brent and WTI crude oils, natural gas and heating oil.…
We consider an optimal investment-consumption problem for a utility-maximizing investor who has access to assets with different liquidity and whose consumption rate as well as terminal wealth are subject to lower-bound constraints. Assuming…
We study power utility maximization for exponential L\'evy models with portfolio constraints, where utility is obtained from consumption and/or terminal wealth. For convex constraints, an explicit solution in terms of the L\'evy triplet is…
Commodity exchange-traded funds (ETFs) are a significant part of the rapidly growing ETF market. They have become popular in recent years as they provide investors access to a great variety of commodities, ranging from precious metals to…
This study presents contemporaneous modeling of asset return and price range within the framework of stochastic volatility with leverage. A new representation of the probability density function for the price range is provided, and its…