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Multi-period investment strategies under Cumulative Prospect Theory

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  • Liurui Deng
  • Traian A. Pirvu

Abstract

In this article, inspired by Shi, et al. we investigate the optimal portfolio selection with one risk-free asset and one risky asset in a multiple period setting under cumulative prospect theory (CPT). Compared with their study, our novelty is that we consider a stochastic benchmark, and portfolio constraints. We test the sensitivity of the optimal CPT-investment strategies to different model parameters by performing a numerical analysis.

Suggested Citation

  • Liurui Deng & Traian A. Pirvu, 2016. "Multi-period investment strategies under Cumulative Prospect Theory," Papers 1608.08490, arXiv.org, revised Mar 2019.
    • Handle: RePEc:arx:papers:1608.08490
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    References listed on IDEAS

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    3. Traian A. Pirvu & Huayue Zhang, 2013. "Utility Indifference Pricing: A Time Consistent Approach," Applied Mathematical Finance, Taylor & Francis Journals, vol. 20(4), pages 304-326, September.
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    8. Chateauneuf, Alain & Dana, Rose-Anne & Tallon, Jean-Marc, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 191-214, October.
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    13. Chateauneuf, Alain & Dana, Rose-Anne & Tallon, Jean-Marc, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 191-214, October.
    14. Xue Dong He & Xun Yu Zhou, 2011. "Portfolio Choice Under Cumulative Prospect Theory: An Analytical Treatment," Management Science, INFORMS, vol. 57(2), pages 315-331, February.
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    Cited by:

    1. Tetiana Zholonko & Olesia Grebinchuk & Maryna Bielikova & Yurii Kulynych & Olena Oviechkina, 2021. "Methodological Tools for Investment Risk Assessment for the Companies of Real Economy Sector," JRFM, MDPI, vol. 14(2), pages 1-10, February.
    2. Giannikos, Christos I. & Kakolyris, Andreas & Suen, Tin Shan, 2023. "Prospect theory and a manager's decision to trade a blind principal bid basket," Global Finance Journal, Elsevier, vol. 55(C).

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