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Continuous-time behavioral portfolio selection

Abstract:

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. The optimal terminal wealth positions, derived in fairly explicit forms, possess surprisingly simple structure: they resemble the payoff of a portfolio of two binary (or digital) options written on the state density price. An example with a two-piece CRRA utility is ...

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Publisher copy:
10.1109/CDC.2008.4738833

Authors


Journal:
Proceedings of the IEEE Conference on Decision and Control
Pages:
5602-5607
Publication date:
2008
DOI:
ISSN:
0191-2216
URN:
uuid:df507dc0-2b99-4c8a-8d29-8ec38711aa52
Source identifiers:
206501
Local pid:
pubs:206501
Language:
English

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