LONG-TERM GROWTH RATE OF EXPECTED UTILITY FOR LEVERAGED ETFs: MARTINGALE EXTRACTION APPROACH
From MaRDI portal
Publication:5367499
DOI10.1142/S0219024917500376zbMATH Open1396.91747arXiv1612.01013MaRDI QIDQ5367499FDOQ5367499
Authors: Tim Leung, Hyungbin Park 
Publication date: 13 October 2017
Published in: International Journal of Theoretical and Applied Finance (Search for Journal in Brave)
Abstract: This paper studies the long-term growth rate of expected utility from holding a leveraged exchanged-traded fund (LETF), which is a constant proportion portfolio of the reference asset. Working with the power utility function, we develop an analytical approach that employs martingale extraction and involves finding the eigenpair associated with the infinitesimal generator of a Markovian time-homogeneous diffusion. We derive explicitly the long-term growth rates under a number of models for the reference asset, including the geometric Brownian motion model, GARCH model, inverse GARCH model, extended CIR model, 3/2 model, quadratic model, as well as the Heston and 3/2 stochastic volatility models. We also investigate the impact of stochastic interest rate such as the Vasicek model and the inverse GARCH short rate model. We determine the optimal leverage ratio for the long-term investor and examine the effects of model parameters.
Full work available at URL: https://arxiv.org/abs/1612.01013
Recommendations
- Path-dependence of leveraged ETF returns
- The dynamics of leveraged ETFs returns: a panel data study
- Levy models and long correlations applied to the study of exchange traded funds
- A study of leveraged ETF based on geometric return
- Rational pricing of leveraged ETF expense ratios
- Leveraged ETF implied volatilities from ETF dynamics
- Short-time expansions for call options on leveraged ETFs under exponential Lévy models with local volatility
- Leveraged exchange-traded funds. Price dynamics and options valuation
- Modelling the rebalancing slippage of leveraged exchange-traded funds
- Determination of the Lévy exponent in asset pricing models
Derivative securities (option pricing, hedging, etc.) (91G20) Applications of stochastic analysis (to PDEs, etc.) (60H30)
Cites Work
- A theory of the term structure of interest rates
- A closed-form solution for options with stochastic volatility with applications to bond and currency options
- THE SPECTRAL DECOMPOSITION OF THE OPTION VALUE
- An equilibrium characterization of the term structure
- Title not available (Why is that?)
- Title not available (Why is that?)
- Optimal long term growth rate of expected utility of wealth
- Risk-sensitive dynamic asset management
- Title not available (Why is that?)
- Dynamic optimization of long-term growth rate for a portfolio with transaction costs and logarithmic utility.
- A new approach for option pricing under stochastic volatility
- A large deviations approach to optimal long term investment
- Solving long term optimal investment problems with Cox-Ingersoll-Ross interest rates
- Path-dependence of leveraged ETF returns
- Dynamic valuation decomposition within stochastic economies
- Long-Term Risk: An Operator Approach
- A study of some diffusion models of population growth
- Optimal strategies for a long-term static investor
- Long time asymptotics for optimal investment
- Positive eigenfunctions of Markovian pricing operators: Hansen-Scheinkman factorization, Ross recovery, and long-term pricing
- The limits of leverage
- Sensitivity analysis of long-term cash flows
- Implied volatility of leveraged ETF options
- Leveraged ETF implied volatilities from ETF dynamics
- Leveraged exchange-traded funds. Price dynamics and options valuation
Cited In (4)
Uses Software
This page was built for publication: LONG-TERM GROWTH RATE OF EXPECTED UTILITY FOR LEVERAGED ETFs: MARTINGALE EXTRACTION APPROACH
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5367499)
