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The Expected Utility of the Doubling Strategy

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  • Omberg, Edward

Abstract

It has been noted that a certain continuous-time trading strategy, termed the "doubling strategy," generates a positive net return on borrowed funds, with probability one and within a finite period of time. Since the doubling strategy seems to represent a "free lunch" or arbitrage opportunity, a variety of constraints to render it infeasible have been proposed. In this paper, the author shows that the doubling strategy generates infinite disutility for a large class of utility functions, and he can think of no utility function for a risk-averse agent that is a counter-example. Copyright 1989 by American Finance Association.

Suggested Citation

  • Omberg, Edward, 1989. " The Expected Utility of the Doubling Strategy," Journal of Finance, American Finance Association, vol. 44(2), pages 515-524, June.
  • Handle: RePEc:bla:jfinan:v:44:y:1989:i:2:p:515-24
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    Cited by:

    1. Athanasoulis, Stefano G., 2005. "Asset pricing from primitives: closed form solutions to asset prices, consumption, and portfolio demands," Journal of Economic Dynamics and Control, Elsevier, vol. 29(3), pages 423-447, March.
    2. Munk, Claus, 2015. "Financial Asset Pricing Theory," OUP Catalogue, Oxford University Press, number 9780198716457.
    3. Stefano G. Athanasoulis & Robert J. Shiller, 2001. "World Income Components: Measuring and Exploiting Risk-Sharing Opportunities," American Economic Review, American Economic Association, vol. 91(4), pages 1031-1054, September.
    4. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

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