Optimal Leverage from Non-ergodicity

@inproceedings{Peters2009OptimalLF,
  title={Optimal Leverage from Non-ergodicity},
  author={Ole Peters},
  year={2009}
}
In modern portfolio theory, the balancing of expected returns on investments against uncertainties in those returns is aided by the use of utility functions. The Kelly criterion offers another approach, rooted in information theory, that always implies logarithmic utility. The two approaches seem incompatible, too loosely or too tightly constraining investors’ risk preferences, from their respective perspectives. This incompatibility goes away by noticing that the model used in both approaches… CONTINUE READING
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