Optimal portfolio choice for a behavioural investor in continuous-time markets |
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Authors: | Miklós Rásonyi Andrea M. Rodrigues |
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Affiliation: | 1. School of Mathematics, University of Edinburgh, Edinburgh, EH9 3JZ, Scotland, UK
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Abstract: | The 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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