Optimal Investment Strategy for Risky Assets

Sergei Maslov and Yi-Cheng Zhang
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Sergei Maslov: Department of Physics, Brookhaven National Laboratory, Upton, NY, 11973, USA
Yi-Cheng Zhang: Institut de Physique Théorique, Université de Fribourg, CH-1700, Switzerland

International Journal of Theoretical and Applied Finance (IJTAF), 1998, vol. 01, issue 03, 377-387

Abstract: We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor's capital. We determine the optimal fraction of capital that an investor should keep in risky assets as well as weights of different assets in an optimal portfolio. In this approach both average return and volatility of an asset are relevant indicators determining its optimal weight. Our results are particularly relevant for very risky assets when traditional continuous-time Gaussian portfolio theories are no longer applicable.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:01:y:1998:i:03:n:s0219024998000217

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DOI: 10.1142/S0219024998000217

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