TY - GEN

T1 - A class of log-optimal utility functions

AU - Cuff, Paul

PY - 2012/5/7

Y1 - 2012/5/7

N2 - One of the classic observations in investment theory is that maximizing the expected-log-return of a portfolio results in the greatest long-term growth of wealth. The log-optimal portfolio is both competitively optimal and pathwise dominant. Nevertheless, investment researchers and practitioners don't all latch on to the log-optimal doctrine, even for theoretical guidance. A common alternative is to use a utility function to evaluate an investment strategy. At first glance it seems that any (non-decreasing) utility function would point to the log-optimal portfolio, at least in the limit. This is known not to be the case. In this work we identify sufficient conditions on a utility function that will produce a happy marriage between utility theory and optimal growth-rate of wealth.

AB - One of the classic observations in investment theory is that maximizing the expected-log-return of a portfolio results in the greatest long-term growth of wealth. The log-optimal portfolio is both competitively optimal and pathwise dominant. Nevertheless, investment researchers and practitioners don't all latch on to the log-optimal doctrine, even for theoretical guidance. A common alternative is to use a utility function to evaluate an investment strategy. At first glance it seems that any (non-decreasing) utility function would point to the log-optimal portfolio, at least in the limit. This is known not to be the case. In this work we identify sufficient conditions on a utility function that will produce a happy marriage between utility theory and optimal growth-rate of wealth.

UR - http://www.scopus.com/inward/record.url?scp=84860496638&partnerID=8YFLogxK

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U2 - 10.1109/ITA.2012.6181818

DO - 10.1109/ITA.2012.6181818

M3 - Conference contribution

AN - SCOPUS:84860496638

SN - 9781467314725

T3 - 2012 Information Theory and Applications Workshop, ITA 2012 - Conference Proceedings

SP - 62

EP - 63

BT - 2012 Information Theory and Applications Workshop, ITA 2012 - Conference Proceedings

T2 - 2012 Information Theory and Applications Workshop, ITA 2012

Y2 - 5 February 2012 through 10 February 2012

ER -