Journal of Mathematical Finance

Volume 4, Issue 2 (February 2014)

ISSN Print: 2162-2434   ISSN Online: 2162-2442

Google-based Impact Factor: 1.39  Citations  

Optimal Investment Strategy for Kinked Utility Maximization: Covered Call Option Strategy

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DOI: 10.4236/jmf.2014.42006    4,529 Downloads   7,421 Views  Citations
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ABSTRACT

This paper describes optimal investment strategies for kinked utility functions. One example is a CRRA utility function with a kink at a maximum wealth, which leads a covered call “like” strategy and the other is a CRRA utility function with a kink at a minimum wealth, which leads a protective put “like” strategy. This paper introduces analytic mathematical solutions providing a mathematical explanation of a dual utility where Black-Sholes assumption is utilized in the solutions. The intuitive solutions are clear for cases of those kinked utilities but minute mathematical explanation is described. Also a numerical simulation is performed for a covered call like strategy case.

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M. Yamashita, "Optimal Investment Strategy for Kinked Utility Maximization: Covered Call Option Strategy," Journal of Mathematical Finance, Vol. 4 No. 2, 2014, pp. 55-74. doi: 10.4236/jmf.2014.42006.

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