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Log-optimal portfolio without NFLVR: existence, complete characterization, and duality

Tahir Choulli and Sina Yansori

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Abstract: This paper addresses the log-optimal portfolio for a general semimartingale model. The most advanced literature on the topic elaborates existence and characterization of this portfolio under no-free-lunch-with-vanishing-risk assumption (NFLVR). There are many financial models violating NFLVR, while admitting the log-optimal portfolio on the one hand. On the other hand, for financial markets under progressively enlargement of filtration, NFLVR remains completely an open issue, and hence the literature can be applied to these models. Herein, we provide a complete characterization of log-optimal portfolio and its associated optimal deflator, necessary and sufficient conditions for their existence, and we elaborate their duality as well without NFLVR.

Date: 2018-07
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Handle: RePEc:arx:papers:1807.06449