Game-theoretic optimal portfolios for jump diffusions
type: Item
instance of: scholarly article
title: Game-theoretic optimal portfolios for jump diffusions
zbMATH Open document ID: 1443.91258
author: Alex Garivaltis
published in: Games
publication date: 2020-05-27T00:00:00Z
full work available at URL: https://arxiv.org/abs/1812.04603
review text: Summary: This paper studies a two-person trading game in continuous time that generalizes \textit{A. Garivaltis} [``Game-theoretic optimal portfolios in continuous time'', Econ. Theory Bul. 7, No. 2, 235--243 (2019; \url{doi:10.1007/s40505-018-0156-5})] to allow for stock prices that both jump and diffuse. Analogous to \textit{R. Bell} and \textit{T. M. Cover} [Manage. Sci. 34, No. 6, 724--752 (1988; Zbl 0649.90014)] in discrete time, the players start by choosing fair randomizations of the initial dollar, by exchanging it for a random wealth whose mean is at most 1. Each player then deposits the resulting capital into some continuously rebalanced portfolio that must be adhered to over \([0, t]\). We solve the corresponding ``investment \(\phi \)-game'', namely the zero-sum game with payoff kernel \(\mathbb{E} [\phi \{\mathbf{W}_1 V_t(b) /(\mathbf{W}_2 V_t(c)) \}]\), where \(\mathbf{W}_i\) is player \(i\)'s fair randomization, \(V_t(b)\) is the final wealth that accrues to a one dollar deposit into the rebalancing rule \(b\), and \(\phi(\bullet)\) is any increasing function meant to measure relative performance. We show that the unique saddle point is for both players to use the (leveraged) Kelly rule for jump diffusions, which is ordinarily defined by maximizing the asymptotic almost-sure continuously compounded capital growth rate. Thus, the Kelly rule for jump diffusions is the correct behavior for practically anybody who wants to outperform other traders (on any time frame) with respect to practically any measure of relative performance.
Mathematics Subject Classification ID: 91G10
Mathematics Subject Classification ID: 91A05
Mathematics Subject Classification ID: 91A80
Mathematics Subject Classification ID: 60J74
zbMATH DE Number: 7205622
zbMATH Keywords: portfolio choice
zbMATH Keywords: continuously rebalanced portfolios
zbMATH Keywords: Kelly criterion
zbMATH Keywords: log-optimal investment
zbMATH Keywords: minimax
zbMATH Keywords: jump processes
MaRDI profile type: MaRDI publication profile
OpenAlex ID: W2904038169
arXiv ID: 1812.04603
cites work: Competitive Optimality of Logarithmic Investment
cites work: Game-Theoretic Optimal Portfolios
cites work: Option pricing when underlying stock returns are discontinuous
cites work: The interval market model in mathematical finance. Game-theoretic methods
cites work: Q5722776
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Wikidata QID: Q128367704
DOI: 10.3390/G10010008
description: scientific article