The 266th Wenlan Financial Forum

Abstract:

We develop a model where a realization-utility investor (Barberis and Xiong, 2009, 2012; Ingersoll and Jin, 2013) optimally targets her liquid-illiquid wealth ratio at a constant w*. By saving in the risk-free asset (w*>0), she makes smaller bets in the illiquid asset and realizes gains/losses more frequently. By leveraging (w*<0), she makes bets larger than her equity and realizes gains/losses less frequently. For a discontinuous/jump-diffusion price process, the solution features four regions: loss-realization, gain-realization, and two disconnected (deep-loss and normal) holding regions. We generate a quantitatively significant non-monotonic propensity to realize losses consistent with evidence.

Speaker Introduction：

Cong Qin is an associate professor of Financial Engineering Research Center of SU University and an outstanding Young scholar of Soochow University. His research interests include financial engineering, fintech, behavioral finance, investment portfolio, economic growth, etc. His research results have been published in Mathematical Finance, SIAM Journal on Financial Mathematics and other authoritative journals of financial engineering, and he won the Best Paper Award for young scholars from the Financial Engineering and Financial Risk Management Branch of the Chinese Operations Research Society in 2019.