Optimal Portfolio Choice for a Behavioural Investor in Continuous-Time Markets
Portfolio Management
2013-04-30 v3 Optimization and Control
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.
Keywords
Cite
@article{arxiv.1202.0628,
title = {Optimal Portfolio Choice for a Behavioural Investor in Continuous-Time Markets},
author = {Miklos Rasonyi and Andrea M. Rodrigues},
journal= {arXiv preprint arXiv:1202.0628},
year = {2013}
}
Comments
An error corrected (Proposition 3.4 and the ensuing unnumbered Remark)