Optimal Investment with Stocks and Derivatives
Pietro Siorpaes
TL;DR
This paper explores an optimal investment strategy that combines static derivatives trading at inception with dynamic stock trading to maximize expected utility in a semi-martingale market model.
Contribution
It introduces a framework for optimal investment combining static derivatives and dynamic stock trading under general semi-martingale models.
Findings
Derived optimal strategies for combined static and dynamic trading.
Demonstrated the impact of derivatives on utility maximization.
Provided theoretical insights into investment decisions with derivatives.
Abstract
This paper studies the problem of maximizing expected utility from terminal wealth combining a static position in derivative securities, which we assume can be traded only at time zero, with a traditional dynamic trading strategy in stocks. We work in the framework of a general semi-martingale model and consider a utility function defined on the positive real line.
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Taxonomy
TopicsStochastic processes and financial applications · Economic theories and models · Complex Systems and Time Series Analysis