Optimal dynamic futures portfolio in a regime-switching market framework

Tim Leung and Yang Zhou ()
Additional contact information
Yang Zhou: Department of Applied Mathematics, University of Washington, Seattle, WA 98195, USA

International Journal of Financial Engineering (IJFE), 2019, vol. 06, issue 04, 1-27

Abstract: We study the problem of dynamically trading futures in a regime-switching market. Modeling the underlying asset price as a Markov-modulated diffusion process, we present a utility maximization approach to determine the optimal futures trading strategy. This leads to the analysis of the associated system of Hamilton–Jacobi–Bellman (HJB) equations, which are reduced to a system of linear ODEs. We apply our stochastic framework to two models, namely, the Regime-Switching Geometric Brownian Motion (RS-GBM) model and Regime-Switching Exponential Ornstein–Uhlenbeck (RS-XOU) model. Numerical examples are provided to illustrate the investor’s optimal futures positions and portfolio value across market regimes.

Keywords: Futures trading; portfolio optimization; regime switching; stochastic control (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2424786319500348
Access to full text is restricted to subscribers

Related works:
Working Paper: Optimal Dynamic Futures Portfolio in a Regime-Switching Market Framework (2019)
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:wsi:ijfexx:v:06:y:2019:i:04:n:s2424786319500348

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2424786319500348

Access Statistics for this article

International Journal of Financial Engineering (IJFE) is currently edited by George Yuan

More articles in International Journal of Financial Engineering (IJFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().