EconPapers    
Economics at your fingertips  
 

Optimal dynamic basis trading

Bahman Angoshtari () and Tim Leung ()
Additional contact information
Bahman Angoshtari: University of Washington

Annals of Finance, 2019, vol. 15, issue 3, No 1, 307-335

Abstract: Abstract We study the problem of dynamically trading a futures contract and its underlying asset under a stochastic basis model. The basis evolution is modeled by a stopped scaled Brownian bridge to account for non-convergence of the basis at maturity. The optimal trading strategies are determined from a utility maximization problem under hyperbolic absolute risk aversion risk preferences. By analyzing the associated Hamilton–Jacobi–Bellman equation, we derive the exact conditions under which the equation admits a solution and solve the utility maximization explicitly. A series of numerical examples are provided to illustrate the optimal strategies and examine the effects of model parameters.

Keywords: Futures; Stochastic basis; Cash and carry; Scaled Brownian bridge; Risk aversion (search for similar items in EconPapers)
JEL-codes: C41 G11 G12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s10436-019-00348-x Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Optimal Dynamic Basis Trading (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:annfin:v:15:y:2019:i:3:d:10.1007_s10436-019-00348-x

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10436/PS2

DOI: 10.1007/s10436-019-00348-x

Access Statistics for this article

Annals of Finance is currently edited by Anne Villamil

More articles in Annals of Finance from Springer
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2020-08-08
Handle: RePEc:kap:annfin:v:15:y:2019:i:3:d:10.1007_s10436-019-00348-x