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On The Consumption/Distribution Theorem Under The Long-Run Growth Criterion Subject To A Drawdown Constraint

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  • MICHAEL J. KLASS

    ()
    (Departments of Statistics and Mathematics, 367 Evans Hall and 910 Evans Hall, UC Berkeley, Berkeley, California 94720-3860, USA)

  • KRZYSZTOF NOWICKI

    ()
    (Department of Statistics, Lund University, Box 743, S-220 07 Lund, Sweden)

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    Abstract

    Consider any discrete time sequence of investment fortunes Fn which has a finite long-run growth rate $V(r, \lambda_*)=\lim_{n\to\infty}\frac{\ln F_n}{n}$ when subject to the present value capital drawdown constraint Fne-rn ≥ λ* max0≤k≤nFke-rk, where 0 ≤ λ*

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 13 (2010)
    Issue (Month): 06 ()
    Pages: 931-957

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    Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:06:p:931-957

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    Related research

    Keywords: Long-run growth; draw-down constraint; log utility; infinite horizon investment and consumption categories; withdrawal strategy; distribution strategy; consumption/distribution theorem; intergenerational trusts;

    References

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    1. Eckhard Platen, 2005. "On the Role of the Growth Optimal Portfolio in Finance," Research Paper Series 144, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Klass, Michael J. & Nowicki, Krzysztof, 2005. "The Grossman and Zhou investment strategy is not always optimal," Statistics & Probability Letters, Elsevier, vol. 74(3), pages 245-252, October.
    3. Markowitz, Harry M, 1976. "Investment for the Long Run: New Evidence for an Old Rule," Journal of Finance, American Finance Association, vol. 31(5), pages 1273-86, December.
    4. Sanford J. Grossman & Zhongquan Zhou, 1993. "Optimal Investment Strategies For Controlling Drawdowns," Mathematical Finance, Wiley Blackwell, vol. 3(3), pages 241-276.
    5. Alexander, Gordon J. & Baptista, Alexandre M., 2006. "Portfolio selection with a drawdown constraint," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3171-3189, November.
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