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Mastering R for Quantitative Finance by Edina Berlinger, Ferenc Illés, Milán Badics, Ádám Banai, Gergely Daróczi, Barbara Dömötör, Gergely Gabler, Dániel Havran, Péter Juhász, István Margitai, Balázs Márkus, Péter Medvegyev, Julia Molnár, Balázs Árpád Szűcs, Ágnes Tuza, Tamás Vadász, Kata Váradi, Ágnes Vidovics-Dancs

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Logoptimal portfolios

Contrary to the previous points, let us suppose that there are a finite number of risky assets available on the market. These assets are traded continuously without any transaction costs. The investor analyses historical market data and based on this, can reset her portfolio at the end of each day. How can she maximize her wealth in the long run? If returns are independent in time, then markets are efficient in the weak sense and the time series of returns have no memory. If returns are also identically distributed (i.i.d), the optimal strategy is to set portfolio weights for example, according to the Markowitz model (see Daróczi et al. 2013) and to keep portfolio weights fixed over the whole time horizon. In this setting, ...

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