 Universal PortfoliosThomas M. Cover Mathematical Finance, 1991, vol. 1, issue 1, 1-29 Abstract: We exhibit an algorithm for portfolio selection that asymptotically outperforms the best stock in the market. Let xi= (xi, xi2,…, xim)t denote the performance of the stock market on day i, where xii is the factor by which the jth stock increases on day i. Let bi= (bi1 bi2, bim)t, b;ij≫ 0, bij= 1, denote the proportion bij of wealth invested in the j th stock on day i. Then Sn= IIin= bitxi is the factor by which wealth is increased in n trading days. Consider as a goal the wealth Sn*= maxb IIin=1 btxi that can be achieved by the best constant rebalanced portfolio chosen after the stock outcomes are revealed. It can be shown that Sn * exceeds the best stock, the Dow Jones average, and the value line index at time n. In fact, Sn* usually exceeds these quantities by an exponential factor. Let x1, x2, be an arbitrary sequence of market vectors. It will be shown that the nonanticipating sequence of portfolios db yields wealth such that , for every bounded sequence x1, x2…, and, under mild conditions, achieve where J, is an (m ‐ 1) x (m ‐ I) sensitivity matrix. Thus this portfolio strategy has the same exponential rate of growth as the apparently unachievable S*n. Date: 1991 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:mathfi:v:1:y:1991:i:1:p:1-29 Ordering information: This journal article can be ordered from Access Statistics for this article Mathematical Finance is currently edited by Jerome Detemple More articles in Mathematical Finance from Wiley Blackwell |
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