Affiliation:
1. Department of Mathematics and Statistics, University of New Mexico, Albuquerque, NM 87131, USA
Abstract
The optimal geometric mean return is an important property of an asset. As a derivative
of the underlying asset, the option also has this property. In this paper, we show that the
optimal geometric mean returns of a stock and its option are the same from Kelly criterion.
It is proved by using binomial option pricing model and continuous stochastic models with
self-financing assumption. A simulation study reveals the same result for the continuous
option pricing model.
Subject
Applied Mathematics,Modelling and Simulation,Statistics and Probability,Analysis
Cited by
8 articles.
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