Abstract
In this paper, we study the deviation probability estimate for a leveraged exchanged-traded fund (LETF). By large deviation principle, we derive explicitly the logarithmic limit of the tail probability when the price of a LETF exceeds a given reference asset, which allows us to compute the underlying leverage ratio. Then we apply our results to various existing models, including the geometric Brownian motion (GBM) model, generalized autoregressive conditional heteroskedasticity (GARCH) model, inverse GARCH model, extended Cox–Ingersoll–Ross (CIR) model, 3/2 model, as well as the Heston and 3/2 stochastic volatility models, and to present their corresponding optimal leverage ratios, respectively.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
