Timing portfolio strategies with exponential Lévy processes

Sergio Ortobelli Lozza (), Enrico Angelelli () and Alda Ndoci
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Sergio Ortobelli Lozza: University of Bergamo
Enrico Angelelli: University of Brescia
Alda Ndoci: University of Bergamo

Computational Management Science, 2019, vol. 16, issue 1, No 6, 97-127

Abstract: Abstract This paper analyses the impact of parametric timing portfolio strategies on the U.S. stock market. In particular, we assume that the log-returns follow a given parametric Lévy process and we describe a methodology to approximate the distributions of stopping times using the underlying Markov transition matrix. Therefore, we propose the use of portfolio strategies based on the maximization of the ratio between the expected first passage time to reach a low level of wealth and the expected first passage time to reach a high level of wealth. Finally, we compare the ex-post wealth obtained maximizing the ratio of proper expected stopping times under different distributional assumptions.

Keywords: Lévy processes; Applied probability; Portfolio strategies; Stopping times (search for similar items in EconPapers)
JEL-codes: C02 G11 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10287-018-0332-y

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