Sharpe Ratio Maximization and Expected Utility when Asset Prices have Jumps
AbstractWe analyze portfolio strategies which are locally optimal, meaning that they maximize the Sharpe ratio in a general continuous time jump-diffusion framework. These portfolios are characterized explicitly and compared to utility based strategies. In the presence of jumps, maximizing the Sharpe ratio is shown to be generally inconsistent with maximizing expected utility, but this is shown to depend strongly on market completeness and whether event risk is priced.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 170.
Date of creation: 01 Nov 2005
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Other versions of this item:
- Morten Mosegaard Christensen & Eckhard Platen, 2007. "Sharpe Ratio Maximization And Expected Utility When Asset Prices Have Jumps," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(08), pages 1339-1364.
- NEP-ALL-2005-12-01 (All new papers)
- NEP-CFN-2005-12-01 (Corporate Finance)
- NEP-FIN-2005-12-01 (Finance)
- NEP-RMG-2005-12-01 (Risk Management)
- NEP-UPT-2005-12-01 (Utility Models & Prospect Theory)
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