Skip to content Skip to navigation
University of Warwick
  • Study
  • |
  • Research
  • |
  • Business
  • |
  • Alumni
  • |
  • News
  • |
  • About

University of Warwick
Publications service & WRAP

Highlight your research

  • WRAP
    • Home
    • Search WRAP
    • Browse by Warwick Author
    • Browse WRAP by Year
    • Browse WRAP by Subject
    • Browse WRAP by Department
    • Browse WRAP by Funder
    • Browse Theses by Department
  • Publications Service
    • Home
    • Search Publications Service
    • Browse by Warwick Author
    • Browse Publications service by Year
    • Browse Publications service by Subject
    • Browse Publications service by Department
    • Browse Publications service by Funder
  • Help & Advice
University of Warwick

The Library

  • Login
  • Admin

Strict local martingales and optimal investment in a Black-Scholes model with a bubble

Tools
- Tools
+ Tools

Herdegen, Martin and Herrmann, Sebastian (2019) Strict local martingales and optimal investment in a Black-Scholes model with a bubble. Mathematical Finance, 29 (1). pp. 285-328. doi:10.1111/mafi.12175

[img]
Preview
PDF
WRAP-strict-local-martingales-Herdegen-2017.pdf - Accepted Version - Requires a PDF viewer.

Download (1447Kb) | Preview
Official URL: https://doi.org/10.1111/mafi.12175

Request Changes to record.

Abstract

There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen–Ledoit–Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and can exhibit strict local martingale behavior, we clarify the connection between these previously disconnected approaches. While the original JLS model is never a strict local martingale, there are relaxations that can be strict local martingales and that preserve the key assumption of a log‐periodic power law for the hazard rate of the time of the crash. We then study the optimal investment problem for an investor with constant relative risk aversion in this model. We show that for positive instantaneous expected returns, investors with relative risk aversion above one always ride the bubble.

Item Type: Journal Article
Subjects: H Social Sciences > HF Commerce
Q Science > QA Mathematics
Divisions: Faculty of Science > Statistics
Library of Congress Subject Headings (LCSH): Financial crises -- Mathematical mdoels, Martingales (Mathematics)
Journal or Publication Title: Mathematical Finance
Publisher: Wiley-Blackwell Publishing, Inc.
ISSN: 0960-1627
Official Date: January 2019
Dates:
DateEvent
January 2019Published
18 February 2018Available
14 October 2017Accepted
Volume: 29
Number: 1
Page Range: pp. 285-328
DOI: 10.1111/mafi.12175
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
Financial Valuation and Risk Management (NCCR FINRISK), Project D1Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschunghttp://dx.doi.org/10.13039/501100001711
Open Access Version:
  • SSRN

Request changes or add full text files to a record

Repository staff actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics

twitter

Email us: wrap@warwick.ac.uk
Contact Details
About Us