SSRN Author: Paolo GuasoniPaolo Guasoni SSRN Content
https://privwww.ssrn.com/author=250510
https://privwww.ssrn.com/rss/en-usSat, 13 Mar 2021 01:09:34 GMTeditor@ssrn.com (Editor)Sat, 13 Mar 2021 01:09:34 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Reference Dependence: Endogenous Anchors and Life-Cycle InvestingIn a complete market, we find optimal portfolios for an investor whose satisfaction stems from both a payoff's intrinsic utility and its comparison with a reference, as specified by Köszegi and Rabin. In the regular regime, arising when reference-dependence is low, the marginal utility of the optimal payoff is proportional to a twist of the pricing kernel. High reference-dependence leads to the anchors regime, whereby investors reduce disappointment by concentrating significant probability in one or few fixed outcomes, and multiple personal equilibria arise. If stocks follow geometric Brownian motion, the model implies that younger investors have larger stocks positions than older investors, suggesting that reference-dependence helps explain this typical recommendation of financial planners.
https://privwww.ssrn.com/abstract=3658342
https://privwww.ssrn.com/2001760.htmlFri, 12 Mar 2021 14:43:01 GMTREVISION: Reference Dependence: Endogenous Anchors and Life-Cycle InvestingIn a complete market, we find optimal portfolios for an investor whose satisfaction stems from both a payoff's intrinsic utility and its comparison with a reference, as specified by Köszegi and Rabin. In the regular regime, arising when reference-dependence is low, the marginal utility of the optimal payoff is proportional to a twist of the pricing kernel. High reference-dependence leads to the anchors regime, whereby investors reduce disappointment by concentrating significant probability in one or few fixed outcomes, and multiple personal equilibria arise. If stocks follow geometric Brownian motion, the model implies that younger investors have larger stocks positions than older investors, suggesting that reference-dependence helps explain this typical recommendation of financial planners.
https://privwww.ssrn.com/abstract=3658342
https://privwww.ssrn.com/2001557.htmlFri, 12 Mar 2021 10:20:34 GMTREVISION: American Student Loans: Repayment and ValuationAmerican student loans are fixed-rate debt contracts that may be repaid in full by a certain maturity. Alternatively, income-based schemes give borrowers the option to make payments proportional to their income above subsistence for a number of years, after which the remaining balance is forgiven but taxed as ordinary income. The repayment strategy that minimizes the present value of future payments takes two possible forms: For a small loan balance, it is optimal to make maximum payments until the loan is fully repaid, forgoing both income-based schemes and loan forgiveness. For a large balance, enrolling in income-based schemes is optimal either immediately or after a period of maximum payments. Overall, the benefits of income-based schemes are substantial for large loan balances but negligible for small loans.
https://privwww.ssrn.com/abstract=3707118
https://privwww.ssrn.com/1955406.htmlMon, 26 Oct 2020 15:49:38 GMTREVISION: American Student Loans: Repayment and ValuationAmerican student loans are fixed-rate debt contracts that may be repaid in full by a certain maturity. Alternatively, income-based schemes give borrowers the option to make payments proportional to their income above subsistence for a number of years, after which the remaining balance is forgiven but taxed as ordinary income. The repayment strategy that minimizes the present value of future payments takes two possible forms: For a small loan balance, it is optimal to make maximum payments until the loan is fully repaid, forgoing both income-based schemes and loan forgiveness. For a large balance, enrolling in income-based schemes is optimal either immediately or after a period of maximum payments. Overall, the benefits of income-based schemes are substantial for large loan balances but negligible for small loans.
https://privwww.ssrn.com/abstract=3707118
https://privwww.ssrn.com/1954679.htmlFri, 23 Oct 2020 10:58:56 GMTREVISION: Reference Dependence: Endogenous Anchors and Life-Cycle InvestingIn a complete market, we find optimal portfolios for an investor whose satisfaction stems from both a payoff's intrinsic utility and its comparison with a reference, as specified by Köszegi and Rabin. In the regular regime, arising when reference-dependence is low, the marginal utility of the optimal payoff is proportional to a twist of the pricing kernel. High reference-dependence leads to the anchors regime, whereby investors reduce disappointment by concentrating significant probability in one or few fixed outcomes, and multiple personal equilibria arise. If stocks follow geometric Brownian motion, the model implies that younger investors have larger stocks positions than older investors, suggesting that reference-dependence helps explain this typical recommendation of financial planners.
https://privwww.ssrn.com/abstract=3658342
https://privwww.ssrn.com/1924448.htmlThu, 23 Jul 2020 10:07:27 GMTREVISION: High-Frequency Trading with Fractional Brownian MotionIn the high-frequency limit, conditional expected increments of fractional Brownian motion converge to a white noise, shedding their dependence on the path history and the forecasting horizon, and making dynamic optimization problems tractable. We find an explicit formula for locally mean-variance optimal strategies and their performance for an asset price that follows fractional Brownian motion. Without trading costs, risk-adjusted profits are linear in the trading horizon and rise asymmetrically as the Hurst exponent departs from Brownian motion, remaining finite as the exponent reaches zero while diverging as it approaches one. Trading costs penalize numerous portfolio updates from short-lived signals, leading to a finite trading frequency, which can be chosen so that the effect of trading costs is arbitrarily small, depending on the required speed of convergence to the high-frequency limit.
https://privwww.ssrn.com/abstract=3436811
https://privwww.ssrn.com/1922163.htmlFri, 17 Jul 2020 09:11:42 GMTREVISION: High-Frequency Trading with Fractional Brownian MotionIn the high-frequency limit, conditional expected increments of fractional Brownian motion converge to a white noise, shedding their dependence on the path history and the forecasting horizon, and making dynamic optimization problems tractable. We find an explicit formula for locally mean-variance optimal strategies and their performance for an asset price that follows fractional Brownian motion. Without trading costs, risk-adjusted profits are linear in the trading horizon and rise asymmetrically as the Hurst exponent departs from Brownian motion, remaining finite as the exponent reaches zero while diverging as it approaches one. Trading costs penalize numerous portfolio updates from short-lived signals, leading to a finite trading frequency, which can be chosen so that the effect of trading costs is arbitrarily small, depending on the required speed of convergence to the high-frequency limit.
https://privwww.ssrn.com/abstract=3436811
https://privwww.ssrn.com/1921579.htmlThu, 16 Jul 2020 08:12:48 GMTREVISION: Options Portfolio SelectionWe develop a new method to optimize portfolios of options in a market where European calls and puts are available with many exercise prices for each of several potentially correlated underlying assets. We identify the combination of asset-specific option payoffs that maximizes the Sharpe ratio of the overall portfolio: such payoffs are the unique solution to a system of integral equations, which reduce to a linear matrix equation under suitable representations of the underlying probabilities. Even when implied volatilities are all higher than historical volatilities, it can be optimal to sell options on some assets while buying options on others, as hedging demand outweighs demand for asset-specific returns.
https://privwww.ssrn.com/abstract=3075945
https://privwww.ssrn.com/1891978.htmlFri, 01 May 2020 08:18:25 GMT