Optimal Strategies for Prudent Investors

R. Baviera, M. Pasquini, M. Serva and A. Vulpiani
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R. Baviera: Universit\`a dell'Aquila and Roma "La Sapienza", Italy
M. Pasquini: Universit\`a dell'Aquila and Roma "La Sapienza", Italy
M. Serva: Universit\`a dell'Aquila and Roma "La Sapienza", Italy
A. Vulpiani: Universit\`a dell'Aquila and Roma "La Sapienza", Italy

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Abstract: We consider a stochastic model of investment on an asset of a stock market for a prudent investor. She decides to buy permanent goods with a fraction $\a$ of the maximum amount of money owned in her life in order that her economic level never decreases. The optimal strategy is obtained by maximizing the exponential growth rate for a fixed $\a$. We derive analytical expressions for the typical exponential growth rate of the capital and its fluctuations by solving an one-dimensional random walk with drift.

Date: 1998-04, Revised 1998-07
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Citations: View citations in EconPapers (3)

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