TY - JOUR
T1 - Optimal investment in equity and VIX derivatives
AU - Yan, Xiangzhen
AU - Zhu, Yunfan
AU - Cui, Zhenyu
AU - Zhang, Shuguang
N1 - Publisher Copyright:
© 2023 The Author(s).
PY - 2023/2/28
Y1 - 2023/2/28
N2 - We solve in closed-form the optimal investment strategies in equity and VIX derivatives in a stochastic volatility model with jumps. Our framework includes both complete market and incomplete market cases, when diffusive risk, volatility risk and jump risk are present. VIX derivatives allow for direct exposure to volatility risk compared to equity de-rivatives. Based on the closed-form formula, we explicitly determine the portfolio improvement brought by the inclusion of the VIX derivative and establish that it is theoretically positive. This justifies the economic intuition and observed de-mand for VIX derivatives in a portfolio management setting. Numerical examples illustrate the results.
AB - We solve in closed-form the optimal investment strategies in equity and VIX derivatives in a stochastic volatility model with jumps. Our framework includes both complete market and incomplete market cases, when diffusive risk, volatility risk and jump risk are present. VIX derivatives allow for direct exposure to volatility risk compared to equity de-rivatives. Based on the closed-form formula, we explicitly determine the portfolio improvement brought by the inclusion of the VIX derivative and establish that it is theoretically positive. This justifies the economic intuition and observed de-mand for VIX derivatives in a portfolio management setting. Numerical examples illustrate the results.
KW - HJB equation
KW - VIX derivatives
KW - incomplete market
KW - optimal investment
KW - stochastic control
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U2 - 10.52396/JUSTC-2022-0095
DO - 10.52396/JUSTC-2022-0095
M3 - Article
AN - SCOPUS:85150365288
SN - 0253-2778
VL - 53
JO - Journal of University of Science and Technology of China
JF - Journal of University of Science and Technology of China
IS - 2
M1 - 6
ER -