Optimal portfolios of a long-term investor with floor or drawdown constraints

Vladimir Cherny and Jan Obloj

Papers from arXiv.org

Abstract: We study the portfolio selection problem of a long-run investor who is maximising the asymptotic growth rate of her expected utility. We show that, somewhat surprisingly, it is essentially not affected by introduction of a floor constraint which requires the wealth process to dominate a given benchmark at all times. We further study the notion of long-run optimality of wealth processes via convergence of finite horizon value functions to the asymptotic optimal value. We characterise long-run optimality under floor and drawdown constraints.

Date: 2013-05
New Economics Papers: this item is included in nep-upt
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