Stochastic maximum principle under probability distortion
Mathematical Finance
2018-08-24 v2 Probability
Abstract
Within the framework of the cumulative prospective theory of Kahneman and Tversky, this paper considers a continuous-time behavioral portfolio selection problem whose model includes both running and terminal terms in the objective functional. Despite the existence of S-shaped utility functions and probability distortions, a necessary condition for optimality is derived. The results are applied to various examples.
Cite
@article{arxiv.1710.11432,
title = {Stochastic maximum principle under probability distortion},
author = {Qizhu Liang and Jie Xiong},
journal= {arXiv preprint arXiv:1710.11432},
year = {2018}
}