Leavey School of Business, Santa Clara University. The author would like to thank Peter Carr, Tom Russell, and an anonymous referee for helpful comments and suggestions.
The Expected Utility of the Doubling Strategy
Article first published online: 30 APR 2012
1989 The American Finance Association
The Journal of Finance
Volume 44, Issue 2, pages 515–524, June 1989
How to Cite
OMBERG, E. (1989), The Expected Utility of the Doubling Strategy. The Journal of Finance, 44: 515–524. doi: 10.1111/j.1540-6261.1989.tb05071.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
It has been noted that a certain continuous-time trading strategy, termed the “doubling strategy”, generates a positive net return on borrowed funds, with probability one and within a finite period of time. Since the doubling strategy seems to represent a “free lunch” or arbitrage opportunity, a variety of constraints to render it infeasible have been proposed. In this paper, we show that the doubling strategy generates infinite disutility for a large class of utility functions, and we can think of no utility function for a risk-averse agent which is a counterexample.