Article ID: | iaor19972363 |
Country: | Germany |
Volume: | 45 |
Issue: | 1 |
Start Page Number: | 1 |
End Page Number: | 43 |
Publication Date: | Jan 1997 |
Journal: | Mathematical Methods of Operations Research (Heidelberg) |
Authors: | Korn R. |
The paper presents a new approach for continuous-time portfolio strategies that relies on the principle of value preservation. This principle was developed by Hellwig for general economic decision and pricing models. The key idea is that an investor should try to consume only so much of his portfolio return that the future ability of the portfolio should be kept constant over time. This ensures that the portfolio will be a long lasting source of income. The paper defines a continuous-time market setting to apply the idea of Hellwig to securities markets with continuous trading and examine existence (and uniqueness) of value-preserving strategies in some widely used market models. Further, it discusses the existence of such strategies in markets with constraints and incompleteness.