Portfolio Generating Functions
20 Pages Posted: 19 Nov 1998
Date Written: June 2, 1998
A general method is presented for constructing dynamic equity portfolios through the use of mathematical generating functions. The return on these functionally generated portfolios is related to the return on the market portfolio by a stochastic differential equation. Under appropriate conditions, this equation can be used to establish a dominance relationship between a functionally generated portfolio and the market portfolio.
Keywords: Portfolio generating function, diversity
JEL Classification: G11, C62
Suggested Citation: Suggested Citation