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Growth-optimal investments and numeraire portfolios under transaction costs

In: HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part II

Author

Listed:
  • Wael Bahsoun
  • Igor V. Evstigneev
  • Michael I. Taksar

Abstract

The aim of this work is to extend the capital growth theory (Kelly, Latané, Breiman, Cover, Ziemba, Thorp, MacLean, Browne, Platen, Heath, and others) to asset market models with transaction costs. We define a natural generalization of the notion of a numeraire portfolio proposed by Long and show how such portfolios can be used for constructing growth-optimal investment strategies. The analysis is based on the classical von Neumann-Gale model of economic dynamics, a stochastic version of which we use as a framework for the modeling of financial markets with frictions.

Suggested Citation

  • Wael Bahsoun & Igor V. Evstigneev & Michael I. Taksar, 2013. "Growth-optimal investments and numeraire portfolios under transaction costs," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part II, chapter 38, pages 789-808, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814417358_0038
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    Cited by:

    1. E. Babaei & I.V. Evstigneev & K.R. Schenk-Hoppé & M.V. Zhitlukhin, 2018. "Von Neumann-Gale Dynamics, Market Frictions, and Capital Growth," Economics Discussion Paper Series 1816, Economics, The University of Manchester.

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