EconPapers    
Economics at your fingertips  
 

Optimal Portfolio with Power Utility of Absolute and Relative Wealth

Andrey Sarantsev

Papers from arXiv.org

Abstract: Portfolio managers often evaluate performance relative to benchmark, usually taken to be the Standard & Poor 500 stock index fund. This relative portfolio wealth is defined as the absolute portfolio wealth divided by wealth from investing in the benchmark (including reinvested dividends). The classic Merton problem for portfolio optimization considers absolute portfolio wealth. We combine absolute and relative wealth in our new utility function. We also consider the case of multiple benchmarks. To both absolute and relative wealth, we apply power utility functions, possibly with different exponents. We obtain an explicit solution and compare it to the classic Merton solution. We apply our results to the Capital Asset Pricing Model setting.

Date: 2021-05, Revised 2021-07
New Economics Papers: this item is included in nep-cwa, nep-fmk and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/2105.08139 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2105.08139

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2024-02-18
Handle: RePEc:arx:papers:2105.08139