A negative report on the `near optimality of the max-expect文献资料.pdfVIP

Journal of Financial Economics 1 (1974) 97-103. Q North-Holland Publishing Company A NEGATIVE REPORT ON THE ‘WAR OPTLMALITY’ OF THE MAX-EXPECTED-LOG POLICY AS APPLIED TO BOUNDED UTILITLE S FOR LONG LIVED PROGRAMS* M. Barry GOLDMAN Sloan School of Management, M.I.T.. Cambridge. Mass. 02139, U.S.A. Received August 1973, revised version received November 1973 Much controversy surrounds the use of the portfolio investment rules induced by maximizing the expected logarithm of terminal wealth (henceforth referred to as the MEL policy). It has been thought that the MEL policy is a good approximation to the optimal investment program when the utility of terminal wealth function is bounded and when the time horizon is long. However, J exhibit a class of bounded utility of terminal wealth functions for which the MEL policy is a very poor approximation to the optimal program. Hence, the wholesale use of the MEL policy as an approximation to the optimal program is unwarranted. Suppose that we must invest our wealth in a risky asset and a risklcss asset for a long period of time and that WC cvaluatc our performance at terminal time T by using the cardinal utility of terminal wealth function, U(W,.). Further, WC stipulate that WCmust rcbalancc the asset mix at the beginning ofcach invcstmcnt period to keep the proportions of the portfolio invested in each security identical to the initial distribution