Related papers: The Interplay between Utility and Risk in Portfoli…
Modern portfolio theory(MPT) addresses the problem of determining the optimum allocation of investment resources among a set of candidate assets. In the original mean-variance approach of Markowitz, volatility is taken as a proxy for risk,…
Risk and utility functionals are fundamental building blocks in economics and finance. In this paper we investigate under which conditions a risk or utility functional is sensitive to the accumulation of losses in the sense that any…
We consider a utility-maximization problem in a general semimartingale financial model, subject to constraints on the number of shares held in each risky asset. These constraints are modeled by predictable convex-set-valued processes whose…
Motivated by the analysis of a general optimal portfolio selection problem, which encompasses as special cases an optimal consumption and an optimal debt-arrangement problem, we are concerned with the questions of how a personality trait…
We consider a single-period portfolio selection problem for an investor, maximizing the expected ratio of the portfolio utility and the utility of a best asset taken in hindsight. The decision rules are based on the history of stock returns…
This paper investigates well posedness of utility maximization problems for financial markets where stock returns depend on a hidden Gaussian mean reverting drift process. Since that process is potentially unbounded, well posedness cannot…
This paper formulates and studies a general continuous-time behavioral portfolio selection model under Kahneman and Tversky's (cumulative) prospect theory, featuring S-shaped utility (value) functions and probability distortions. Unlike the…
We present an optimal investment theorem for a currency exchange model with random and possibly discontinuous proportional transaction costs. The investor's preferences are represented by a multivariate utility function, allowing for…
We examine the problem of optimal portfolio allocation within the framework of utility theory. We apply exponential utility to derive the optimal diversification strategy and logarithmic utility to determine the optimal leverage. We enhance…
Under mean-variance-utility framework, we propose a new portfolio selection model, which allows wealth and time both have influences on risk aversion in the process of investment. We solved the model under a game theoretic framework and…
Portfolio selection problems that optimize expected utility are usually difficult to solve. If the number of assets in the portfolio is large, such expected utility maximization problems become even harder to solve numerically. Therefore,…
We consider the problem of choosing a portfolio that maximizes the cumulative prospect theory (CPT) utility on an empirical distribution of asset returns. We show that while CPT utility is not a concave function of the portfolio weights, it…
This paper studies an optimal consumption-investment problem for an investor whose instantaneous utility depends on both consumption and wealth, and the investor faces a general borrowing constraint that the investment amount in the risky…
We investigate a continuous-time investment-consumption problem with model uncertainty in a general diffusion-based market with random model coefficients. We assume that a power utility investor is ambiguity-averse, with the preference to…
Diversification is the typical investment strategy of risk-averse agents. However, non-diversified positions that allocate all resources to a single asset, state of the world or revenue stream are common too. We show that whenever finitely…
We study the problem of maximising terminal utility for an agent facing model uncertainty, in a frictionless discrete-time market with one safe asset and finitely many risky assets. We show that an optimal investment strategy exists if the…
In this paper, we consider $n$ agents who invest in a general financial market that is free of arbitrage and complete. The aim of each investor is to maximize her expected utility while ensuring, with a specified probability, that her…
We study portfolio selection in a complete continuous-time market where the preference is dictated by the rank-dependent utility. As such a model is inherently time inconsistent due to the underlying probability weighting, we study the…
We analyze characteristics' joint predictive information through the lens of out-of-sample power utility functions. Linking weights to characteristics to form optimal portfolios suffers from estimation error which we mitigate by maximizing…
How should well-being be prioritised in society, and what trade-offs are people willing to make between fairness and personal well-being? We investigate these questions using a stated preference experiment with a nationally representative…