Exponential investors with weakly mean-reverting prices
Balazs Hoffmann, Miklos Rasonyi
Abstract
We investigate a continuous-time financial market where the asset price exhibits weak (sublinear) mean reversion and has a nonzero drift. Complementing earlier work on strong (superlinear) mean reversion, we show that, for an investor maximizing expected exponential utility, the certainty equivalent grows as $O(T^{2β+1})$ where $0<β<1$ is the strength of mean reversion. An explicit asymptotically optimal strategy is also given.
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