Rásonyi Miklós (Rényi Intézet és ELTE): Portolio choice for exponential investors when prices are mean-reverting

Several asset classes show mean-reverting features, e.g. commodities, commodity futures, long-term safe assets (gold, platinum). We investigate the portfolio choice problem for investors with exponential utilities (=high risk aversion) as the investment horizon T tends to infinity.

It turns out that the optimal equivalent safe rate grows in a superlinear way, depending on the strength of the mean-reversion effect. We cannot find the explicit optimisers but construct a family of strategies that are optimal asymptotically (they generate equivalent safe rates of the optimal order). Interestingly, the presence or absence of a drift leads to entirely different conclusions, the nonzero drift case spectacularly outperforming the driftless one.