The Grossman and Zhou investment strategy is not always optimal

Michael J. Klass and Krzysztof Nowicki

Statistics & Probability Letters, 2005, vol. 74, issue 3, 245-252

Abstract: Grossman and Zhou [1993. Optimal investment strategies for controlling drawdowns. Math. Finance 3, 241-276] proposed a strategy to maximize the asymptotic long-run growth rate of one's fortune Ft subject to its never falling below , where 0[less-than-or-equals, slant][lambda][less-than-or-equals, slant]1 is a fixed constant chosen by the investor and r is a fixed, known, non-negative, continuously compounded interest rate on invested capital. In this paper we show that the strategy proposed in Grossman and Zhou does not retain its optimal long-run growth property when generalized to the discrete-time setting.

Keywords: Drawdown; Portfolio; insurance; Optimal; asset; allocation (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (5)

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