SSRN Author: Jan VecerJan Vecer SSRN Content
https://privwww.ssrn.com/author=1295683
https://privwww.ssrn.com/rss/en-usSat, 16 Jan 2021 01:00:28 GMTeditor@ssrn.com (Editor)Sat, 16 Jan 2021 01:00:28 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0New: On Equity Market Inefficiency During the COVID-19 PandemicWe show that during the weeks following the initiation of the COVID-19 pandemic, the United States equity market was inefficient. This is demonstrated by showing that utility maximizing agents over the time period ranging from mid-February to late March 2020 can generate statistically significant profits by utilizing only historical price and virus related data to forecast future equity ETF returns. We generalize Merton’s optimal portfolio problem using a novel method based upon a likelihood ratio in order to construct a dynamic trading strategy for utility maximizing agents. These strategies are shown to have statistically significant profitability and strong risk and performance statistics during the COVID-19 time-frame.
https://privwww.ssrn.com/abstract=3764847
https://privwww.ssrn.com/1981203.htmlFri, 15 Jan 2021 11:22:23 GMTREVISION: Optimal Distributional Trading Gain: Generalizations of Merton's Portfolio Problem with Implications to Bayesian StatisticsThis paper considers multiple market agents who have distinct distributional opinions about the state price density. We first determine the optimal trading positions of a utility maximizing market taker who trades Arrow-Debreu securities for prices set by the market maker. We use calculus of variations to determine the solution of this problem for a general utility function. The choice of the logarithmic utility function leads to a solution in terms of a likelihood ratio of the densities corresponding to the market taker and the market maker and the resulting optimal utility is the Kullback-Leibler divergence. In particular, we obtain a trivial solution for Merton's portfolio problem in the traditional geometric Brownian motion model and and we show its immediate extension to the multivariate case. A further extension gives a solution for the market driven by a geometric Poisson process. In a market without the market maker, the distributional opinions of market takers reach an ...
https://privwww.ssrn.com/abstract=3616661
https://privwww.ssrn.com/1932868.htmlTue, 18 Aug 2020 08:44:29 GMTREVISION: Optimal Distributional Trading Gain: State Price Density Equilibrium and Bayesian StatisticsThis paper considers multiple market agents who have distinct distributional opinions about the state price density. We first determine the optimal trading positions of a utility maximizing market taker who trades Arrow-Debreu securities for prices set by the market maker. We use calculus of variations to determine the solution of this problem for a general utility function. The choice of the logarithmic utility function leads to a solution in terms of a likelihood ratio of the densities corresponding to the market taker and the market maker and the resulting optimal utility is the Kullback-Leibler divergence. In particular, we obtain a trivial solution for Merton's portfolio problem in the traditional geometric Brownian motion model and we show its immediate extension to the geometric Poisson process model. In a market without the market maker, the distributional opinions of market takers reach an equilibrium in the form of the linear mixture of the distributions. We show that when ...
https://privwww.ssrn.com/abstract=3616661
https://privwww.ssrn.com/1930114.htmlMon, 10 Aug 2020 14:11:23 GMTREVISION: The Premium Reduction of European, American, and Perpetual Log Return OptionsTraditional plain vanilla options can be regarded as options on a simple return. These options have convex payoffs and as a consequence of Jensen’s inequality, their prices are increasing as a function of maturity in the absence of interest rate. This makes long dated call options as excessively expensive in relationship to the fraction of the insured portfolio. We show that replacing a simple return payoff with the log return call option payoff leads to substantial savings while providing the same protection type. The call options on log return have a favorable price for very long maturities in the scale of decades, making them attractive for long term investment funds, such as pension funds.
https://privwww.ssrn.com/abstract=3467150
https://privwww.ssrn.com/1928554.htmlWed, 05 Aug 2020 08:18:46 GMTREVISION: Optimal Distributional Trading Gain: State Price Density Equilibrium and Bayesian StatisticsThis paper considers multiple market agents who have distinct distributional opinions about the state price density. We first determine the optimal trading positions of a utility maximizing market taker who trades Arrow-Debreu securities for prices set by the market maker. We use calculus of variations to determine the solution of this problem for a general utility function. The choice of the logarithmic utility function leads to a solution in terms of a likelihood ratio of the densities corresponding to the market taker and the market maker and the resulting optimal utility is the Kullback-Leibler divergence. In a market without the market maker, the distributional opinions of market takers reach an equilibrium in the form of the linear mixture of the distributions. We show that when the the result of the outcome is observed, the profit and loss from trading updates agents' bankrolls in a Bayesian fashion, which provides one to one correspondence for the logarithmic utility ...
https://privwww.ssrn.com/abstract=3616661
https://privwww.ssrn.com/1920030.htmlMon, 13 Jul 2020 08:30:42 GMTREVISION: Optimal Distributional Trading Gain: State Price Density Equilibrium and Bayesian StatisticsThis paper considers multiple market agents who have distinct distributional opinions about the state price density. We first determine the optimal trading positions of a utility maximizing market taker who trades Arrow-Debreu securities for prices set by the market maker. We use calculus of variations to determine the solution of this problem for a general utility function. The choice of the logarithmic utility function leads to a solution in terms of a likelihood ratio of the densities corresponding to the market taker and the market maker and the resulting optimal utility is the Kullback-Leibler divergence. In a market without the market maker, the distributional opinions of market takers reach an equilibrium in the form of the linear mixture of the distributions. We show that when the the result of the outcome is observed, the profit and loss from trading updates agents' bankrolls in a Bayesian fashion, which provides one to one correspondence for the logarithmic utility ...
https://privwww.ssrn.com/abstract=3616661
https://privwww.ssrn.com/1914049.htmlFri, 26 Jun 2020 15:41:38 GMTNew: Kelly Criterion, State Price Density Equilibrium and Bayesian StatisticsThis paper considers multiple market agents who have distinct distributional opinions about the state price density. Different opinions can be contested on a hypothetical market that trades Arrow-Debreu securities. We focus on the situation when the agents are maximizing logarithmic utility as this generalizes the Kelly criterion to multiple and infinite number of outcomes. We determine analytically the optimal volumes for the Arrow-Debreu securities to be traded and show that the agent's increase of the expected utility corresponds to the relative entropy between her and the market distributions also known as a Kullback-Leibler divergence. The distributional opinions reach an equilibrium in the form of the linear mixture of the distributions. We show that when the the result of the outcome is observed, the profit and loss from trading updates agents' bankrolls in a Bayesian fashion. We extend these results to exponential and power utility functions.
https://privwww.ssrn.com/abstract=3532237
https://privwww.ssrn.com/1872750.htmlThu, 05 Mar 2020 17:29:59 GMT