The Expected Utility of the Doubling Strategy
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.
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Volume (Year): 44 (1989)
Issue (Month): 2 (June)
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