Robust maximization of asymptotic growth

Details Robust maximization of asymptotic growth Robust maximization of asymptotic growth

2010-05-19

arxiv.org/abs/1005.3454v3

Economy

Quantitative Finance

Portfolio Management

31 pages; substantially revised third version

Scientific paper

This paper addresses the question of how to invest in a robust growth-optimal way in a market where the instantaneous expected return of the underlying process is unknown. The optimal investment strategy is identified using a generalized version of the principal eigenfunction for an elliptic second-order differential operator which depends on the covariance structure of the underlying process used for investing. The robust growth-optimal strategy can also be seen as a limit, as the terminal date goes to infinity, of optimal arbitrages in the terminology of Fernholz and Karatzas.

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