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Capital Growth Theory

In: Mathematical Financial Economics

Author

Listed:
  • Igor V. Evstigneev

    (University of Manchester)

  • Thorsten Hens

    (University of Zurich)

  • Klaus Reiner Schenk-Hoppé

    (University of Manchester)

Abstract

The chapter presents basic ideas and results related to capital growth theory. It introduces the dynamic securities market model with an infinite time horizon and self-financing strategies defined in terms of investment proportions. The highlight of the chapter is the study of the problem of growth optimal investments. It shows that the log-optimal portfolio rule is the solution to this problem in the class of simple (constant proportions) strategies. The chapter concludes with the classical example of the horse race model and the Kelly gambling rule of “betting your beliefs.”

Suggested Citation

  • Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2015. "Capital Growth Theory," Springer Texts in Business and Economics, in: Mathematical Financial Economics, edition 127, chapter 17, pages 169-176, Springer.
    • Handle: RePEc:spr:sptchp:978-3-319-16571-4_17
    DOI: 10.1007/978-3-319-16571-4_17
    as

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