Dynamic optimal capital growth of diversified investment

Luo Yong, Zhu Bo and Tang Yong

Journal of Applied Statistics, 2015, vol. 42, issue 3, 577-588

Abstract: 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.

Date: 2015
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DOI: 10.1080/02664763.2014.980783

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