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Excerpt from Arbitrage With Holding Costs: An Utility-Based Approach
Section I describes how holding costs can transform riskless arbitrage opportunities into potentially profitable but risky investment projects. It then argues that holding costs are important in many different arbitrage contexts.
Section II presents a model of arbitrage activity. The scene is set with a holding cost structure and an exogenous mispricing process that, in combination, do not admit riskless arbitrage opportunities. The paper then derives the partial differential equation governing a risk averse arbitrageur's optimal, dynamic strategy. For the case of negative exponential utility it is shown that 1) arbitrageurs will hold a position if and only if the potential gains are large enough, 2) the position is finite, and 3) arbitrageurs will take a position even with an instantaneously negative expected return since any future losses will be accompanied by greater arbitrage opportunities.
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Arbitrage With Holding Costs: An Utility-Based Approach (Classic Reprint)
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Paperback. Zustand: New. Print on Demand. This book seeks to establish a theoretical framework for understanding the impact of market frictions on investment strategies by studying one such friction: holding costs. The author notes that these often-ignored, unit-time costs are present in many arbitrage contexts, citing the short-selling of spot securities and reverse repurchase agreements as examples. The author's model is the first to incorporate such costs without removing all incentives for arbitrageurs to exploit market mispricings, painting a more realistic picture than previous models. It is assumed that arbitrageurs are not risk-tolerant speculators, but rather risk-averse investors with a finite time horizon. The author finds that, even so, arbitrageurs will, in fact, take risky positions with the potential to return a finite, though positive, reward, despite the presence of substantial holding costs. This book is a reproduction of an important historical work, digitally reconstructed using state-of-the-art technology to preserve the original format. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in the book. print-on-demand item. Bestandsnummer des Verkäufers 9781332251896_0
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Arbitrage With Holding Costs An UtilityBased Approach Classic Reprint
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Arbitrage With Holding Costs An UtilityBased Approach Classic Reprint
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Arbitrage With Holding Costs : An Utility-Based Approach (Classic Reprint)
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Zustand: Hervorragend. Zustand: Hervorragend | Sprache: Englisch | Produktart: Bücher | Keine Beschreibung verfügbar. Bestandsnummer des Verkäufers 26073583/1
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