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Optimal portfolios of a long-term investor with floor or drawdown constraints

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  • Vladimir Cherny
  • Jan Obloj

Abstract

We study the portfolio selection problem of a long-run investor who is maximising the asymptotic growth rate of her expected utility. We show that, somewhat surprisingly, it is essentially not affected by introduction of a floor constraint which requires the wealth process to dominate a given benchmark at all times. We further study the notion of long-run optimality of wealth processes via convergence of finite horizon value functions to the asymptotic optimal value. We characterise long-run optimality under floor and drawdown constraints.

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  • Vladimir Cherny & Jan Obloj, 2013. "Optimal portfolios of a long-term investor with floor or drawdown constraints," Papers 1305.6831, arXiv.org.
    • Handle: RePEc:arx:papers:1305.6831
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    References listed on IDEAS

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