Related papers: Analysis of Kelly-optimal portfolios
This paper studies the properties of the optimal portfolio-consumption strategies in a {finite horizon} robust utility maximization framework with different borrowing and lending rates. In particular, we allow for constraints on both…
We consider how to optimally allocate investments in a portfolio of competing technologies using the standard mean-variance framework of portfolio theory. We assume that technologies follow the empirically observed relationship known as…
The signal-noise ratio of a portfolio of p assets, its expected return divided by its risk, is couched as an estimation problem on the sphere. When the portfolio is built using noisy data, the expected value of the signal-noise ratio is…
It is well known that there are asymmetric dependence structures between financial returns. In this paper we use a new nonparametric measure of local dependence, the local Gaussian correlation, to improve portfolio allocation. We extend the…
We present a method for constructing the log-optimal portfolio using the well-calibrated forecasts of market values. Dawid's notion of calibration and the Blackwell approachability theorem are used for computing well-calibrated forecasts.…
The potential benefits of portfolio diversification have been known to investors for a long time. Markowitz (1952) suggested the seminal approach for optimizing the portfolio problem based on finding the weights as budget shares that…
Models of adaptive bet-hedging commonly adopt insights from Kelly's famous work on optimal gambling strategies and the financial value of information. In particular, such models seek evolutionary solutions that maximize long term average…
This paper studies the portfolio optimization problem when the investor's utility is general and the return and volatility of the risky asset are fast mean-reverting, which are important to capture the fast-time scale in the modeling of…
We examine the problem of optimal portfolio allocation within the framework of utility theory. We apply exponential utility to derive the optimal diversification strategy and logarithmic utility to determine the optimal leverage. We enhance…
The portfolio optimization problem in which the variances of the return rates of assets are not identical is analyzed in this paper using the methodology of statistical mechanical informatics, specifically, replica analysis. We define two…
In this paper we consider the problem of minimising drawdown in a portfolio of financial assets. Here drawdown represents the relative opportunity cost of the single best missed trading opportunity over a specified time period. We formulate…
We study Markowitz's mean-variance portfolio selection problem in a continuous-time Black-Scholes market with different borrowing and saving rates. The associated Hamilton-Jacobi-Bellman equation is fully nonlinear. Using a delicate partial…
In this work, we consider weighted signed network representations of financial markets derived from raw or denoised correlation matrices, and examine how negative edges can be exploited to reduce portfolio risk. We then propose a discrete…
In a capital adequacy framework, risk measures are used to determine the minimal amount of capital that a financial institution has to raise and invest in a portfolio of pre-specified eligible assets in order to pass a given capital…
Portfolio selection problems that optimize expected utility are usually difficult to solve. If the number of assets in the portfolio is large, such expected utility maximization problems become even harder to solve numerically. Therefore,…
We consider the mean--variance portfolio optimization problem under the game theoretic framework and without risk-free assets. The problem is solved semi-explicitly by applying the extended Hamilton--Jacobi--Bellman equation. Although the…
In the existing financial literature, entropy based ideas have been proposed in portfolio optimization, in model calibration for options pricing as well as in ascertaining a pricing measure in incomplete markets. The abstracted problem…
Markowitz mean-variance portfolios with sample mean and covariance as input parameters feature numerous issues in practice. They perform poorly out of sample due to estimation error, they experience extreme weights together with high…
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…
For a sequence of binary bets, the Kelly criterion provides a closed-form solution that maximizes the expected growth rate of wealth. In contrast, when multiple bets are placed simultaneously (e.g., in portfolio allocation or prediction…