Stochastic Models for Assets Allocation under the Framework of Prospect and Cumulative Prospect Theory
نویسندگان
چکیده
This paper examines the problem of choosing the optimal portfolio for an investor with asymmetric attitude to gains and losses described in the prospect theory of A. Tversky and D. Kahneman. We consider the portfolio optimization problem for an investor who follows the assumptions of the prospect theory and the cumulative prospect theory under conditions on the stochastic behavior both of the portfolio price and the discount factor.
منابع مشابه
Explaining Heterogeneity in Risk Preferences Using a Finite Mixture Model
This paper studies the effect of the space (distance) between lotteries' outcomes on risk-taking behavior and the shape of estimated utility and probability weighting functions. Previously investigated experimental data shows a significant space effect in the gain domain. As compared to low spaced lotteries, high spaced lotteries are associated with higher risk aversion for high probabilities o...
متن کاملAsset allocation determinants under Cumulative Prospect Theory
In this paper we compute the asset allocation obtained with different parametrizations of Cumulative Prospect Theory; in this settings, Prospect Theory and Expected Utility are seen as special cases. We first look for the optimal portfolio in an artificial financial market, where the asset returns are generated such that each return is endowed with some desired statistical properties (i.e. the ...
متن کاملInsurer Optimal Asset Allocation in a Small and Closed Economy: The Case of Iran’s Social Security Organization
We seek to determine the optimal amount of the insurer’s investment in all types of assets for a small and closed economy. The goal is to detect the implications and contributions the risk seeker and risk aversion insurer commonly make and the effectiveness in the investment decision. Also, finding the optimum portfolio for each is the main goal of the present study. To this end, we adopted the...
متن کاملSeparating response variability from structural inconsistency to test models of risky decision making
Individual true and error theory assumes that responses by the same person to the same choice problem within a block of trials are based on the same true preferences but may show preference reversals due to random error. Between blocks, a person’s true preferences may differ or stay the same. This theory is illustrated with studies testing two critical properties that distinguish models of risk...
متن کاملA note on the connection between the Tsallis’ thermodynamics and cumulative prospect theory
This note presents explicitly a strong connection between the Tsallis thermodynamics and the so-called prospect theory introduced to take into account agent’s decisions under risk. Moreover, using the cumulative prospect theory adapted here for a continuous framework, we show that if the Tsallis parameter q belongs to the interval [0,1], then the prospect theory requirement that extreme events ...
متن کامل