communication: OPTIMIZATION: Optimal Investment in Markets with Over and UnderReaction
speaker: Giorgia Callegarospeaker: Mhamed Gaigi
speaker: Simone Scotti (Université de Paris (Paris Diderot))
speaker: Carlo Sgarra (Politecnico di Milano)
abstract: In this paper we introduce a jumpdiffusion model of shotnoise type for stock prices, taking into account over and underreaction of the market to incoming news. We focus on the expected (logarithmic) utility maximization problem by providing the optimal investment strategy in explicit form, both under full (i.e., from the insider point of view, aware of the right kind of reaction at any time) and under partial information (i.e., from the standard investor viewpoint, who needs to infer the kind of reaction from data). We test our results on market data relative to Enron and Ahold. The three main contributions of this paper are: the introduction of a new market model dealing with over and underreaction to news, the explicit computation of the optimal filter dynamics using an original approach based on enlargement of filtrations and the application of the optimal portfolio allocation rule to market data.
timetable:
Thu 28 Jan, 15:00 - 17:00, Aula Bianchi Scienze
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