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.
May 8th, 2019, 11:00-12:00, D4.4.008
Leopold Sögner, IHS
Title: "Optimal High-Risk Investment"
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.