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dc.contributor.authorGarivaltis, Alexen_US
dc.date.accessioned2019-09-03T16:06:47Z
dc.date.available2019-09-03T16:06:47Z
dc.date.issued2019
dc.identifier.citationGarivaltis, A., 2019. Nash Bargaining Over Margin Loans to Kelly Gamblers. Risks, 7(3), 93.en_US
dc.identifier.urihttps://commons.lib.niu.edu/handle/10843/20302
dc.description.abstractI derive practical formulas for optimal arrangements between sophisticated stock market investors (namely, continuous-time Kelly gamblers or, more generally, CRRA investors) and the brokers who lend them cash for leveraged bets on a high Sharpe asset (i.e. the market portfolio). Rather than, say, the broker posting a monopoly price for margin loans, the gambler agrees to use a greater quantity of margin debt than he otherwise would in exchange for an interest rate that is lower than the broker would otherwise post. The gambler thereby attains a higher asymptotic capital growth rate and the broker enjoys a greater rate of intermediation profit than would obtain under non-cooperation. If the threat point represents a vicious breakdown of negotiations (resulting in zero margin loans), then we get an elegant rule of thumb: the negotiated interest rate is (3/4)r +(1/4)(ν−σ^2/2), where r is the broker’s cost of funds, ν is the compound-annual growth rate of the market index, and σ is the annual volatility. We show that, regardless of the particular threat point, the gambler will negotiate to size his bets as if he himself could borrow at the broker’s call rate.en_US
dc.description.sponsorshipN.I.U. Open Access Publishing Funden_US
dc.language.isoen_USen_US
dc.publisherRisksen_US
dc.relation.ispartof7;3
dc.subjectNash Bargainingen_US
dc.subjectMargin Loansen_US
dc.subjectKelly Bettingen_US
dc.subjectLog-Optimal Portfoliosen_US
dc.subjectContinuously-Rebalanced Portfoliosen_US
dc.subjectNet Interest Marginen_US
dc.titleNash Bargaining Over Margin Loans to Kelly Gamblersen_US
dc.type.genreArticleen_US
dc.typeTexten_US
dc.contributor.departmentDepartment of Economicsen_US


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