Optimal Investment to Minimize the Probability of Drawdown

Bahman Angoshtari, Erhan Bayraktar and Virginia R. Young

Papers from arXiv.org

Abstract: We determine the optimal investment strategy in a Black-Scholes financial market to minimize the so-called {\it probability of drawdown}, namely, the probability that the value of an investment portfolio reaches some fixed proportion of its maximum value to date. We assume that the portfolio is subject to a payout that is a deterministic function of its value, as might be the case for an endowment fund paying at a specified rate, for example, at a constant rate or at a rate that is proportional to the fund's value.

Date: 2015-05, Revised 2016-02
New Economics Papers: this item is included in nep-rmg
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