Dynamic optimal capital growth of diversified investment

Luo, Yong; Zhu, Bo; Tang, Yong

doi:10.1080/02664763.2014.980783

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Journal article

Dynamic optimal capital growth of diversified investment

Luo, Yong School of Management and Economics, University of Electronic Science and Technology, Chengdu, China
Zhu, Bo School of Finance, Southwestern University of Finance and Economics, Chengdu, China
Tang, Yong School of Management and Economics, University of Electronic Science and Technology, 610054 Chengdu, People's Republic of China; Department of Physics, University of Fribourg, Chemin du Musée 3, CH-1700 Fribourg, Switzerland

04.03.2015

Published in:

Journal of Applied Statistics. - 2015, vol. 42, no. 3, p. 577–588

English We investigate the problem of dynamic optimal capital growth of diversified investment. A general framework that the trader maximize the expected log utility of long-term growth rate of initial wealth was developed. We show that the trader's fortune will exceed any fixed bound when the fraction is chosen less than critical value. But, if the fraction is larger than that value, ruin is almost sure. In order to maximize wealth, we should choose the optimal fraction at each trade. Empirical results with real financial data show the feasible allocation. The larger the fraction and hence the larger the chance of falling below the desired wealth growth path.

Faculty

Faculté des sciences et de médecine

Department

Département de Physique

Language