Using standard preferences for asset pricing has not been very successful to match asset price characteristics such as the risk-free interest rate, equity premium and the Sharpe ratio to time series data. Behavioral finance has recently proposed more realistic preferences such as preferences with loss aversion to model asset pricing. Research has now started to explore the implications of behaviorally founded preferences for asset price characteristics. Yet the solution to those models is intricate and depends on the solution techniques employed. In this paper a stochastic version of a dynamic programming method with adaptive grid scheme is applied to compute the above mentioned asset price characteristics of a model with loss aversion in preferences. Since, as shown in Grüne and Semmler (2004), our method produces only negligible errors it is suitable to be used as solution technique for such models with more intricate decision structure.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)