Portfolio optimisation under non-linear drawdown constraints in a semimartingale financial model

Vladimir Cherny and Jan Obloj

Papers from arXiv.org

Abstract: A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a drawdown constraint, as in the original setup of Grossman and Zhou (1993). We work in an abstract semimartingale financial market model with a general class of utility functions and drawdown constraints. We solve the problem by showing that it is in fact equivalent to an unconstrained problem with a suitably modified utility function. Both the value function and the optimal investment policy for the drawdown problem are given explicitly in terms of their counterparts in the unconstrained problem.

Date: 2011-10, Revised 2013-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://arxiv.org/pdf/1110.6289 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1110.6289

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().