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Optimal Strategies for Prudent Investors

Author

Listed:
  • Roberto Baviera

    (Dipartimento di Fisica, Università dell'Aquila, and Istituto Nazionale Fisica della Materia Via Vetoio I-67010 Coppito, L'Aquila, Italy)

  • Michele Pasquini

    (Dipartimento di Matematica, Università dell'Aquila, and Istituto Nazionale Fisica della Materia Via Vetoio, I-67010 Coppito, L'Aquila, Italy)

  • Maurizio Serva

    (Dipartimento di Matematica, Università dell'Aquila, and Istituto Nazionale Fisica della Materia Via Vetoio, I-67010 Coppito, L'Aquila, Italy)

  • Angelo Vulpiani

    (Dipartimento di Fisica, Università di Roma "La Sapienza", and Istituto Nazionale Fisica della Materia P.le A. Moro 2, I-00185 Roma, Italy)

Abstract

We consider a stochastic model of investment on an asset in a stock market for a prudent investor. she decides to buy permanent goods with a fraction α 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 α. 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

  • Roberto Baviera & Michele Pasquini & Maurizio Serva & Angelo Vulpiani, 1998. "Optimal Strategies for Prudent Investors," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 1(04), pages 473-486.
    • Handle: RePEc:wsi:ijtafx:v:01:y:1998:i:04:n:s0219024998000254
    DOI: 10.1142/S0219024998000254
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    Cited by:

    1. Hellwig, Klaus, 2002. "Growth and utility maximization," Economics Letters, Elsevier, vol. 77(3), pages 377-380, November.
    2. Klaus Hellwig, 2002. "Value management," Quantitative Finance, Taylor & Francis Journals, vol. 2(2), pages 133-138.

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