Optimal Portfolio Choice for a Behavioural Investor in Continuous-Time Markets
AbstractThe aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time financial market framework and assuming that asset prices are modelled by semimartingales, we derive sufficient and necessary conditions for the well-posedness of the optimisation problem in the case of piecewise-power probability distortion and utility functions. Finally, under straightforwardly verifiable conditions, we further demonstrate the existence of an optimal strategy.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1202.0628.
Date of creation: Feb 2012
Date of revision: Apr 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-15 (All new papers)
- NEP-CWA-2012-02-15 (Central & Western Asia)
- NEP-MAC-2012-02-15 (Macroeconomics)
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