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Timing portfolio strategies with exponential Lévy processes

Author

Listed:
  • Sergio Ortobelli Lozza

    (University of Bergamo
    VSB-TU of Ostrava)

  • Enrico Angelelli

    (University of Brescia)

  • Alda Ndoci

    (University of Bergamo)

Abstract

This paper analyses the impact of parametric timing portfolio strategies on the U.S. stock market. In particular, we assume that the log-returns follow a given parametric Lévy process and we describe a methodology to approximate the distributions of stopping times using the underlying Markov transition matrix. Therefore, we propose the use of portfolio strategies based on the maximization of the ratio between the expected first passage time to reach a low level of wealth and the expected first passage time to reach a high level of wealth. Finally, we compare the ex-post wealth obtained maximizing the ratio of proper expected stopping times under different distributional assumptions.

Suggested Citation

  • Sergio Ortobelli Lozza & Enrico Angelelli & Alda Ndoci, 2019. "Timing portfolio strategies with exponential Lévy processes," Computational Management Science, Springer, vol. 16(1), pages 97-127, February.
    • Handle: RePEc:spr:comgts:v:16:y:2019:i:1:d:10.1007_s10287-018-0332-y
    DOI: 10.1007/s10287-018-0332-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Lévy processes; Applied probability; Portfolio strategies; Stopping times;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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