Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/257924 
Year of Publication: 
2019
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 7 [Issue:] 3 [Article No.:] 86 [Publisher:] MDPI [Place:] Basel [Year:] 2019 [Pages:] 1-15
Publisher: 
MDPI, Basel
Abstract: 
The Growth-Optimal Portfolio (GOP) theory determines the path of bet sizes that maximize long-term wealth. This multi-horizon goal makes it more appealing among practitioners than myopic approaches, like Markowitz's mean-variance or risk parity. The GOP literature typically considers risk-neutral investors with an infinite investment horizon. In this paper, we compute the optimal bet sizes in the more realistic setting of risk-averse investors with finite investment horizons. We find that, under this more realistic setting, the optimal bet sizes are considerably smaller than previously suggested by the GOP literature. We also develop quantitative methods for determining the risk-adjusted growth allocations (or risk budgeting) for a given finite investment horizon.
Subjects: 
drawdown
finite investment horizon
Growth-optimal portfolio
Kelly criterion
risk management
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
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