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Computational Management Science

, Volume 16, Issue 1–2, pp 97–127 | Cite as

Timing portfolio strategies with exponential Lévy processes

  • Sergio Ortobelli Lozza
  • Enrico AngelelliEmail author
  • Alda Ndoci
Original Paper
  • 44 Downloads

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 

JEL Classification

C02 G11 

Notes

Acknowledgements

This paper was supported by the Italian funds MURST 2017/2018. The research was also supported by the Czech Science Foundation (GACR) under Project 17-19981S, and by VSB-TU Ostrava under the SGS Project SP2018/34.

Supplementary material

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department SAEMQUniversity of BergamoBergamoItaly
  2. 2.Department of Economics and ManagementUniversity of BresciaBresciaItaly
  3. 3.Department of FinanceVSB-TU of OstravaOstravaCzech Republic

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