Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 7, 2022 erstellt
Beschreibung:
This paper presents a novel approach to portfolio optimization based on perceived mean reversion in certain driftless markets, such as the foreign exchange spot market. This approach relies upon the likelihood ratio between the perceived and realized price distribution densities of the asset under consideration. The market acts as an implicit maximizer of a log utility, where the expected log return of a price corresponds to the relative entropy of the state price densities. An agent may disagree with existing state price density, namely she can have a different opinion about the values of a drift and volatility of the underlying price process. We examine the situation when the final price is perceived to be less volatile than that expected by the market