Maslowian Portfolio Theory: An alternative formulation of the Behavioural Portfolio Theory

Modern Portfolio Theory, Digital Portfolio Theory and Intertemporal Portfolio Choice

The paper compares three portfolio optimization models. Modern portfolio theory (MPT) is a short-horizon volatility model. The relevant time horizon is the sampling interval. MPT is myopic and implies that investors are not concerned with long-term variance or mean-reversion. Intertemporal portfolio choice is a multiple period model that revises portfolios continuously in response to relevant s...

An Evolutionary Portfolio Theory

The purpose of this paper is to suggest a new theory of portfolio selection which is based on evolutionary reasoning in simple repeated market situations. According to this new point of view the ultimate success of a portfolio strategy is measured by the wealth share the strategy is eventually able to conquer in an evolutionary process of market selection. We identify a simple portfolio strateg...

Cover’s Universal Portfolio, Stochastic Portfolio Theory and the Numéraire Portfolio

Cover’s celebrated theorem states that the long run yield of a properly chosen “universal” portfolio is as good as the long run yield of the best retrospectively chosen constant rebalanced portfolio. The “universality” pertains to the fact that this result is model-free, i.e., not dependent on an underlying stochastic process. We extend Cover’s theorem to the setting of stochastic portfolio the...

An Introduction to Portfolio Theory

Stochastic Portfolio Theory: an Overview

Stochastic Portfolio Theory is a flexible framework for analyzing portfolio behavior and equity market structure. This theory was introduced by E.R. Fernholz in the papers (Journal of Mathematical Economics, 1999; Finance & Stochastics, 2001) and in the monograph Stochastic Portfolio Theory (Springer 2002). It was further developed in the papers Fernholz, Karatzas & Kardaras (Finance & Stochast...