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Optimal Strategies for Prudent Investors

Author

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  • R. Baviera

    (Universit\`a dell'Aquila and Roma "La Sapienza", Italy)

  • M. Pasquini

    (Universit\`a dell'Aquila and Roma "La Sapienza", Italy)

  • M. Serva

    (Universit\`a dell'Aquila and Roma "La Sapienza", Italy)

  • A. Vulpiani

    (Universit\`a dell'Aquila and Roma "La Sapienza", Italy)

Abstract

We consider a stochastic model of investment on an asset of a stock market for a prudent investor. She decides to buy permanent goods with a fraction $\a$ of the maximum amount of money owned in her life in order that her economic level never decreases. The optimal strategy is obtained by maximizing the exponential growth rate for a fixed $\a$. We derive analytical expressions for the typical exponential growth rate of the capital and its fluctuations by solving an one-dimensional random walk with drift.

Suggested Citation

  • R. Baviera & M. Pasquini & M. Serva & A. Vulpiani, 1998. "Optimal Strategies for Prudent Investors," Papers cond-mat/9804297, arXiv.org, revised Jul 1998.
    • Handle: RePEc:arx:papers:cond-mat/9804297
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    Cited by:

    1. Hellwig, Klaus, 2004. "Portfolio selection subject to growth objectives," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2119-2128, September.
    2. Hellwig, Klaus, 2002. "Growth and utility maximization," Economics Letters, Elsevier, vol. 77(3), pages 377-380, November.
    3. Klaus Hellwig, 2002. "Value management," Quantitative Finance, Taylor & Francis Journals, vol. 2(2), pages 133-138.

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