VGSF - WU Vienna - LC

Leopold Sögner, IHS

Campus WU D4.4.008 11:00 - 12:00

Organizer WU Vienna

The Fin­ance Brown Bag Sem­inar is held by the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance (WU Vi­enna) and the Vi­enna Gradu­ate School of Fin­ance (VGSF). It serves as a present­a­tion plat­form for PhD stu­dents, fac­ulty mem­bers, and vis­it­ors. An over­view of BBS on the web­site of the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance.

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May 8th, 2019, 11:00-12:00, D4.4.008

Leo­pold Sögner, IHS

Title: "Op­timal High-Risk In­vest­ment"

Ab­stract

We ex­tend an in­vest­ment model of Bruss and Fer­guson (2002) type, where an in­vestor ob­serves a sequence of T in­vest­ment al­tern­at­ives, each en­dowed with a ran­dom qual­ity char­ac­ter­istic. The in­form­a­tion avail­able at any period is the cur­rent and all prior qual­ity char­ac­ter­ist­ics and the in­vestor has to de­cide whether to in­vest in the same period the pro­ject shows up. Fi­nally, after the last in­vest­ment al­tern­at­ive has shown up, those n pro­jects with highest real­ized qual­ity char­ac­ter­ist­ics gen­er­ate pos­it­ive gross-re­turns which de­pend on their re­l­at­ive rank­ing, while the pay­offs of all other pro­jects are zero. Un­der these as­sump­tions we ob­tain the value func­tions and op­timal in­vest­ment rules for risk-neut­ral or risk-a­verse in­vestors. A sim­u­la­tion study demon­strates how op­timal in­vest­ment de­cisions are af­fected by the time ho­ri­zon and by the at­ti­tudes to­wards risk. In ad­di­tion, we provide suf­fi­cient con­di­tions un­der that the value func­tion is non-in­creas­ing in the num­ber of peri­ods T.



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