Ronnie Sircar — ORFE, Princeton

Event Date: 

Wednesday, March 8, 2017 - 3:30pm to 5:00pm

Event Date Details: 

Refreshments served at 3:15pm

Event Location: 

  • Sobel Seminar Room
  • CFMAR Seminar Series

Abstract: Portfolio optimization in an uncertain market environment can be modelled via a stochastic Sharpe ratio process, where the uncertainty may arise from the drift or volatility, or both, of the risky asset. The impact of the uncertainty can be approximately characterized through the concept of implied Sharpe ratio, analogous to the much-studied implied volatility in option pricing. We show how this can be used to produce adjustments to the Merton optimal investment strategy that account for principal features of the stochastic market environment, and how the implied volatility skew can be used to infer parameters for this strategy.