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ON PORTFOLIO CHOICE BY MAXIMIZING THE OUTPERFORMANCE PROBABILITY
Author(s) -
Puhalskii Anatolii A.
Publication year - 2011
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2010.00420.x
Subject(s) - portfolio , mathematical optimization , benchmark (surveying) , asymptotically optimal algorithm , selection (genetic algorithm) , geometric brownian motion , heuristic , simple (philosophy) , econometrics , expected shortfall , computer science , economics , mathematics , financial economics , artificial intelligence , diffusion process , knowledge management , philosophy , innovation diffusion , geodesy , epistemology , geography
We consider the problem of optimal portfolio selection for a multidimensional geometric Brownian motion model. We look for portfolios that maximize the probability of outperforming a stochastic benchmark. More specifically, we seek to maximize the decay rate of the shortfall probability and (or) to minimize the decay rate of the outperformance probability in the long run. A simple heuristic enables us to find an asymptotically optimal investment policy. The results provide interesting insights.