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Analysis of universal portfolios with and without side information Crouspeyre, Gilles

Abstract

In this paper, we want to analyze the concept of Universal Portfolio and to try it on some realistic data. In order to do so, we need first to write a complete version of one of the main results of T. Cover, Universal Portfolio's creator. Then, we study the constant rebalanced portfolio in a general case of N assets. This portfolio is usually the target the Universal Portfolio is aiming at. Once this is done, we look at how to construct the Universal Portfolio for the same N assets, and think about the optimal Dirichlet distribution the proportions of wealth invested should follow, in order to reach the optimal wealth. Finally, we proceed to an extensive numerical analysis and show the limits of the model.

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