Muteba Mwamba, John and Suteni, Mwambi (2010): An alternative to portfolio selection problem beyond Markowitz’s: Log Optimal Growth Portfolio.

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Abstract
This paper constructs an alternative investment strategy to portfolio optimization model in the framework of the Mean–Variance portfolio selection model. To differentiate it from the ubiquitously applied Mean–Variance model, which is constructed on an assumption that returns are normally distributed, our model makes two assumptions: Firstly, that asset prices follow a Geometric Brownian Motion and that secondly asset prices are Lognormally distributed meaning that continuously compounded returns are normally distributed. The traditional Mean–Variance optimization approach has only one objective, which fails to capture the stochastic nature of asset returns and their correlations. This paper presents an alternative approach to the portfolio selection problem. The proposed optimization model which is an optimal portfolio strategy is produced for investors of various risk tolerance, taking into account the stochastic nature of the returns. Detailed analysis based on log– optimal growth optimization and the application of the model are provided and compared to the standard Mean–Variance approach.
Item Type:  MPRA Paper 

Original Title:  An alternative to portfolio selection problem beyond Markowitz’s: Log Optimal Growth Portfolio 
English Title:  An alternative to portfolio selection problem beyond Markowitz’s: Log Optimal Growth Portfolio 
Language:  English 
Keywords:  Portfolio selection, Kelly criteria, mean variance, optimization 
Subjects:  C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61  Optimization Techniques ; Programming Models ; Dynamic Analysis C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63  Computational Techniques ; Simulation Modeling G  Financial Economics > G1  General Financial Markets G  Financial Economics > G1  General Financial Markets > G11  Portfolio Choice ; Investment Decisions 
Item ID:  50240 
Depositing User:  Dr John Muteba Mwamba 
Date Deposited:  02. Oct 2013 11:21 
Last Modified:  02. Oct 2013 12:14 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/50240 