We study the problem of a fund manager whose contractual incentive is given by the sum of a constant and a variable term. The manager has a power utility function and the continuous time stochastic processes driving the dynamics of the market prices exhibit mean reversion either in the volatilities or in the expected returns. We provide an approximation for the optimal wealth and for the optimal strategy based on affine processes and the fast fourier transform.

Optimal strategies with option compensation under mean reverting returns or volatilities

Marco Nicolosi
2019-01-01

Abstract

We study the problem of a fund manager whose contractual incentive is given by the sum of a constant and a variable term. The manager has a power utility function and the continuous time stochastic processes driving the dynamics of the market prices exhibit mean reversion either in the volatilities or in the expected returns. We provide an approximation for the optimal wealth and for the optimal strategy based on affine processes and the fast fourier transform.
2019
Investment Analysis
Portfolio Management
Convex incentives
Optimal Control
Fourier transform
Mean reverting processes
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.14085/4750
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