Maximising Survival, Growth, and Goal Reaching Under Borrowing Constraints

TL;DR

This paper develops methods for optimizing investment survival, growth, and goal achievement under borrowing restrictions by constructing an auxiliary market and applying dynamic programming.

Contribution

It introduces a novel approach using an auxiliary market and dynamic programming to solve constrained investment problems, extending existing methods.

Findings

Effective strategies for maximizing survival, growth, and goal reaching under borrowing constraints.

Construction of an auxiliary market simplifies complex constrained optimization problems.

Demonstrates the applicability of dynamic programming in constrained financial decision-making.

Abstract

In this paper, we consider three problems related to survival, growth, and goal reaching maximization of an investment portfolio with proportional net cash flow. We solve the problems in a market constrained due to borrowing prohibition. To solve the problems, we first construct an auxiliary market and then apply the dynamic programming approach. Via our solutions, an alternative approach is introduced in order to solve the problems defined under an auxiliary market.