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Growth-Optimal Investments And Numeraire Portfolios Under Transaction Costs: An Analysis Based On The Von Neumann-gale Model

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Executive Summary

The aim of this work is to extend the capital growth theory developed by Kelly, Breiman, Cover and others to asset market models with transaction costs. The authors 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 they use as a framework for the modelling of financial markets with frictions.

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