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A Note On Portfolio Management Under Non-Gaussian Logreturns

Author

Listed:
  • FRED ESPEN BENTH

    (Department of Mathematics, University of Oslo, P.O. Box 1053, Blindern, N-0316 Oslo, Norway)

  • KENNETH HVISTENDAHL KARLSEN

    (Department of Mathematics, University of Bergen, Johs. Brunsgt. 12, N-5008 Bergen, Norway)

  • KRISTIN REIKVAM

    (Department of Mathematics, University of Oslo, P.O. Box 1053, Blindern, N-0316 Oslo, Norway)

Abstract

We calculate numerically the optimal allocation and consumption strategies for Merton's optimal portfolio management problem when the risky asset is modelled by a geometric normal inverse Gaussian Lévy process. We compare the computed strategies to the ones given by the standard asset model of geometric Brownian motion. To have realistic parameters in our studies, we choose Norsk Hydro quoted on the New York Stock Exchange as the risky asset. We find that an investor believing in the normal inverse Gaussian model puts a greater fraction of wealth into the risky asset. We also investigate the limiting investment rate when the volatility increases. We observe different behaviour in the two models depending on which parameters we vary in the normal inverse Gaussian distribution.

Suggested Citation

  • Fred Espen Benth & Kenneth Hvistendahl Karlsen & Kristin Reikvam, 2001. "A Note On Portfolio Management Under Non-Gaussian Logreturns," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 4(05), pages 711-731.
    • Handle: RePEc:wsi:ijtafx:v:04:y:2001:i:05:n:s0219024901001206
    DOI: 10.1142/S0219024901001206
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    Cited by:

    1. Le Courtois, Olivier & Menoncin, Francesco, 2015. "Portfolio optimisation with jumps: Illustration with a pension accumulation scheme," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 127-137.

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