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Game-Theoretic Optimal Portfolios

Author

Listed:
  • Robert Bell

    (The Rand Corporation)

  • Thomas M. Cover

    (Departments of Statistics and Electrical Engineering, Stanford University, Stanford, California 94305)

Abstract

We show, for a wide variety of payoff functions, that the expected log optimal portfolio is also game theoretically optimal in a single play or in multiple plays of the stock market. Thus there is no essential conflict between good short-term and long-run performance. Both are achieved by maximizing the conditional expected log return.

Suggested Citation

  • Robert Bell & Thomas M. Cover, 1988. "Game-Theoretic Optimal Portfolios," Management Science, INFORMS, vol. 34(6), pages 724-733, June.
    • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:6:p:724-733
    DOI: 10.1287/mnsc.34.6.724
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    Citations

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    Cited by:

    1. Salvatore Tirone & Maddalena Ghio & Giulia Livieri & Vittorio Giovannetti & Stefano Marmi, 2020. "Kelly Betting with Quantum Payoff: a continuous variable approach," Papers 2001.11395, arXiv.org, revised Sep 2021.
    2. Rabah Amir & Igor Evstigneev & Klaus Schenk-Hoppé, 2013. "Asset market games of survival: a synthesis of evolutionary and dynamic games," Annals of Finance, Springer, vol. 9(2), pages 121-144, May.
    3. Jian-Qiao Zhu & Joshua C. Peterson & Benjamin Enke & Thomas L. Griffiths, 2024. "Capturing the Complexity of Human Strategic Decision-Making with Machine Learning," Papers 2408.07865, arXiv.org.
    4. W. Bahsoun & I. Evstigneev & L. Xu, 2011. "Almost sure Nash equilibrium strategies in evolutionary models of asset markets," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 73(2), pages 235-250, April.
    5. Alex Garivaltis, 2021. "A Note on Universal Bilinear Portfolios," IJFS, MDPI, vol. 9(1), pages 1-17, February.
    6. Trindade, Marco A.S. & Floquet, Sergio & Filho, Lourival M. Silva, 2020. "Portfolio theory, information theory and Tsallis statistics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 541(C).
    7. J. D. M. Yamim & C. C. H. Borges & R. F. Neto, 2023. "Portfolio Optimization Via Online Gradient Descent and Risk Control," Computational Economics, Springer;Society for Computational Economics, vol. 62(1), pages 361-381, June.
    8. Matej Uhr'in & Gustav v{S}ourek & Ondv{r}ej Hub'av{c}ek & Filip v{Z}elezn'y, 2021. "Optimal sports betting strategies in practice: an experimental review," Papers 2107.08827, arXiv.org.
    9. Steve Alpern & J. V. Howard, 2017. "Winner-Take-All Games: The Strategic Optimisation of Rank," Operations Research, INFORMS, vol. 65(5), pages 1165-1176, October.
    10. Stanislav Shalunov & Alexei Kitaev & Yakov Shalunov & Arseniy Akopyan, 2020. "Calculated Boldness: Optimizing Financial Decisions with Illiquid Assets," Papers 2012.13830, arXiv.org.
    11. Rabah Amir & Igor V. Evstigneev & Valeriya Potapova, 2021. "Unbeatable Strategies," Economics Discussion Paper Series 2101, Economics, The University of Manchester, revised Jul 2023.
    12. Tirone, Salvatore & Ghio, Maddalena & Livieri, Giulia & Giovannetti, Vittorio & Marmi, Stefano, 2021. "Kelly betting with quantum payoff: a continuous variable approach," LSE Research Online Documents on Economics 123978, London School of Economics and Political Science, LSE Library.
    13. Alex Garivaltis, 2019. "Game-theoretic optimal portfolios in continuous time," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 235-243, December.
    14. Habip Kocak, 2014. "Canonical Coalition Game Theory for Optimal Portfolio Selection," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(9), pages 1254-1259, September.

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