 An alternative to portfolio selection problem beyond Markowitz’s: Log Optimal Growth PortfolioJohn Weirstrass Muteba Mwamba and Mwambi Suteni MPRA Paper from University Library of Munich, Germany Abstract: This paper constructs an alternative investment strategy to portfolio optimization model in the framework of the Mean–Variance portfolio selection model. To differentiate it from the ubiquitously applied Mean–Variance model, which is constructed on an assumption that returns are normally distributed, our model makes two assumptions: Firstly, that asset prices follow a Geometric Brownian Motion and that secondly asset prices are Log-normally distributed meaning that continuously compounded returns are normally distributed. The traditional Mean–Variance optimization approach has only one objective, which fails to capture the stochastic nature of asset returns and their correlations. This paper presents an alternative approach to the portfolio selection problem. The proposed optimization model which is an optimal portfolio strategy is produced for investors of various risk tolerance, taking into account the stochastic nature of the returns. Detailed analysis based on log– optimal growth optimization and the application of the model are provided and compared to the standard Mean–Variance approach. Keywords: Portfolio selection; Kelly criteria; mean variance; optimization (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:50240 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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