Sharpe Ratio Maximization and Expected Utility when Asset Prices have Jumps
We 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.
|Date of creation:||01 Nov 2005|
|Date of revision:|
|Publication status:||Published as: Christensen, M. and Platen, E., 2007, "Sharpe Ratio Maximization and Expected Utility when Asset Prices have Jumps", International Journal of Theoretical and Applied Finance, 10(8), 1339-1364.|
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