Optimal Investment Strategy for Risky Assets

DOI10.1142/S0219024998000217MaRDI QIDQ4216120zbMATH OpenFDO

Authors Sergei Maslov, Yi-Cheng Zhang

Publication date 28 December 1998

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/cond-mat/9801240

zbMATH Keywords

multiplicative Brownian motionoptimal fraction of capitaloptimal portfoliorisky assets

Mathematics Subject Classification ID

Abstract: We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor's capital. We determine the optimal fraction of capital that an investor should keep in risky assets as well as weights of different assets in an optimal portfolio. In this approach both average return and volatility of an asset are relevant indicators determining its optimal weight. Our results are particularly relevant for very risky assets when traditional continuous-time Gaussian portfolio theories are no longer applicable.

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Cites work

• A Mathematical Theory of Communication
• Exposition of a New Theory on the Measurement of Risk
• Investment policies for expanding businesses optimal in a long‐run sense

Cited in

(19)

• Weighted entropy and optimal portfolios for risk-averse Kelly investments
• Optimal investment problem under non-extensive statistical mechanics
• Imperfect information as a source of non-symmetry in the two envelope problem
• Optimal strategies for prudent investors
• Analysis of Kelly-optimal portfolios
• Gain from the two-envelope problem via information asymmetry: on the suboptimality of randomized switching
• On Parrondo's paradox: how to construct unfair games by composing fair games
• OPTIMAL LAG IN DYNAMICAL INVESTMENTS
• A GENERAL METHODOLOGY TO PRICE AND HEDGE DERIVATIVES IN INCOMPLETE MARKETS
• RISK-SEEKING VERSUS RISK-AVOIDING INVESTMENTS IN NOISY PERIODIC ENVIRONMENTS
• Investing equally in risk
• Developments in Parrondo’s Paradox
• FINANCIAL FRICTION AND MULTIPLICATIVE MARKOV MARKET GAMES
• DRIVING FORCE IN INVESTMENT
• GROWTH-OPTIMAL STRATEGIES WITH QUADRATIC FRICTION OVER FINITE-TIME INVESTMENT HORIZONS
• The Kelly system maximizes median fortune
• Dynamic optimal capital growth of diversified investment
• On asymptotic log-optimal portfolio optimization
• Illusion of control in time-horizon minority and Parrondo games

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