The Grossman and Zhou investment strategy is not always optimal
Author
Summary, in English
Grossman and Zhou [1993. Optimal investment strategies for controlling drawdowns. Math. Finance 3, 241-276] proposed a strategy to maximize the asymptotic long-run growth rate of one's fortune F, subject to its never falling below lambda sup(0 <= t'<= t) F(t')e(r(t-t')), where 0 <=lambda <= 1 is a fixed constant chosen by the investor and r is a fixed, known, non-negative, continuously compounded interest rate on invested capital. In this paper we show that the strategy proposed in Grossman and Zhou does not retain its optimal long-run growth property when generalized to the discrete-time setting.
Department/s
Publishing year
2005
Language
English
Pages
245-252
Publication/Series
Statistics and Probability Letters
Volume
74
Issue
3
Document type
Journal article
Publisher
Elsevier
Topic
- Probability Theory and Statistics
Keywords
- optimal asset allocation
- drawdown
- portfolio insurance
Status
Published
ISBN/ISSN/Other
- ISSN: 0167-7152