Optimal investment to minimize the probability of drawdown

DOI10.1080/17442508.2016.1155590zbMATH Open1367.91162arXiv1506.00166OpenAlexW566847370MaRDI QIDQ2833710FDOQ2833710

Authors: Bahman Angoshtari, Erhan Bayraktar, Virginia R. Young 

Publication date: 25 November 2016

Published in: Stochastics (Search for Journal in Brave)

Abstract: We determine the optimal investment strategy in a Black-Scholes financial market to minimize the so-called {it probability of drawdown}, namely, the probability that the value of an investment portfolio reaches some fixed proportion of its maximum value to date. We assume that the portfolio is subject to a payout that is a deterministic function of its value, as might be the case for an endowment fund paying at a specified rate, for example, at a constant rate or at a rate that is proportional to the fund's value.

Full work available at URL: https://arxiv.org/abs/1506.00166

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zbMATH Keywords

stochastic optimal controloptimal investmentprobability of drawdown

Mathematics Subject Classification ID

Portfolio theory (91G10) Optimal stochastic control (93E20)

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