Optimal Investment Strategy for Risky Assets

Details Optimal Investment Strategy for Risky Assets Optimal Investment Strategy for Risky Assets

1998-01-23

arxiv.org/abs/cond-mat/9801240v1

International Journal of Theoretical and Applied Finance 1,377 (1998).

Physics

Condensed Matter

Statistical Mechanics

11 pages, 1 figure, submitted to International Journal of Theoretical and Applied Finance

Scientific paper

We design an optimal strategy for investment in a portfolio of assets subject to a multiplicative Brownian motion. The strategy provides the maximal typical long-term growth rate of investor's capital. We determine the optimal fraction of capital that an investor should keep in risky assets as well as weights of different assets in an optimal portfolio. In this approach both average return and volatility of an asset are relevant indicators determining its optimal weight. Our results are particularly relevant for very risky assets when traditional continuous-time Gaussian portfolio theories are no longer applicable.

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