Université de Fribourg

Transaction fees and optimal rebalancing in the growth-optimal portfolio

Feng, Yu ; Medo, Matúš ; Zhang, Liang ; Zhang, Yi-Cheng

In: Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, no. 9, p. 1635-1645

The growth-optimal portfolio optimization strategy pioneered by Kelly is based on constant portfolio rebalancing which makes it sensitive to transaction fees. We examine the effect of fees on an example of a risky asset with a binary return distribution and show that the fees may give rise to an optimal period of portfolio rebalancing. The optimal period is found analytically in the case of...

Université de Fribourg

Diversification and limited information in the Kelly game

Medo, Matúš ; Pis’mak, Yury M. ; Zhang, Yi-Cheng

In: Physica A: Statistical Mechanics and its Applications, 2008, vol. 387, no. 24, p. 6151-6158

Financial markets, with their vast range of different investment opportunities, can be seen as a system of many different simultaneous games with diverse and often unknown levels of risk and reward. We introduce generalizations to the classic Kelly investment game [J.L. Kelly, IEEE Transactions on Information Theory 2 (1956) 185–189] that incorporates these features, and use them to investigate...

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