Optimal spreading when spreading is optimal

Article Abstract:

The problem of an investor who has a non-traded position operating in a stochastic interest rates environment is analyzed. The investor must trade either two distinct futures contracts or two distinct forward contracts to reach the welfare level of the first best optimum. The optimal dynamic forward spreading strategy maximizes the investor's expected utility of terminal wealth. The investor is compelled to hold less futures contracts than the corresponding forward contract positions. This analysis is extended to incomplete markets and intermarket spreading.

Securities and Commodity Exchanges, Security and commodity exchanges, Commodity Exchanges, Analysis, Investments, Futures market, Futures markets, Futures

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Optimal hedging in a dynamic futures market with a nonnegativity constraint on wealth

Article Abstract:

A study was undertaken to examine optimal hedging demands for futures contracts from an investor who is not free to trade a portfolio of primitive assets. This problem is situated in the context of lognormal returns and of a constant absolute risk aversion utility function. In this scenario, the nonnegativity limitation on wealth is required and the optimal hedging demands are not similar to those commonly observed. Results are discussed.

Hedging (Finance), Financial futures, Wealth

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On optimal portfolio choice under stochastic interest rates

Article Abstract:

While interest rates and stock price changes are driven by several variables, this paper proposes an optimal strategy for an investor with a non-traded cash bond position involving two elements of interest rate risks.

Israel, France, Statistical Data Included, Methods, Investigations, Interest rates, Bonds, Bonds (Securities), Investors, Stochastic processes

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