MPS-RR 2000-5

February 2000

# A note on portfolio management under non-Gaussian logreturns

by:

### Fred Espen Benth, Kenneth Hvistendahl Karlsen and Kristin Reikvam

We calculate numerically the optimal allocation and consumption strategies for
Merton's optimal portfolio management problem when the risky asset is modelled by a geometric
normal inverse Gaussian Levy process. We compare the computed strategies to the ones given
by the standard asset model of geometric Brownian motion. To have realistic parameters in our
studies, we choose Norsk Hydro
quoted on the New York Stock Exchange as the risky asset. We find that an investor believing in the
normal inverse Gaussian model puts a greater fraction of wealth into the risky asset.
We also investigate the limiting investment rate when
the volatility increases. We observe different behaviour in the two models depending on which
parameters we vary in the normal inverse Gaussian distribution.

Availability: [ gzipped `ps`

-file ] [ `pdf`

-file ]

[ Help on down-loading/viewing/printing ]

This paper has now been published in *Int. J. Theor. Appl. Finance 4, 711--731 (2001)*