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2014 Continuous-Time Portfolio Optimisation for a Behavioural Investor with Bounded Utility on Gains
Miklós Rásonyi, Andrea Meireles Rodrigues
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Electron. Commun. Probab. 19: 1-13 (2014). DOI: 10.1214/ECP.v19-2990


This paper examines an optimal investment problem in a continuous-time (essentially) complete financial market with a finite horizon. We deal with an investor who behaves consistently with principles of Cumulative Prospect Theory, and whose utility function on gains is bounded above. The well-posedness of the optimisation problemis trivial, and a necessary condition for the existence of an optimal trading strategyis derived. This condition requires that the investor’s probability distortion function on losses does not tend to 0 near 0 faster than a given rate, which is determined by the utility function. Under additional assumptions, we show that this condition is indeed the borderline for attainability, in the sense that for slower convergence of the distortion function there does exist an optimal portfolio.


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Miklós Rásonyi. Andrea Meireles Rodrigues. "Continuous-Time Portfolio Optimisation for a Behavioural Investor with Bounded Utility on Gains." Electron. Commun. Probab. 19 1 - 13, 2014.


Accepted: 23 June 2014; Published: 2014
First available in Project Euclid: 7 June 2016

zbMATH: 1297.91133
MathSciNet: MR3225869
Digital Object Identifier: 10.1214/ECP.v19-2990

Primary: 91G10
Secondary: 49J55 , 60H30 , 93E20

Keywords: Behavioural finance , Bounded utility , Choquet integral , Continuous-time models , Market completeness , Non-concave utility , Optimal portfolio , probability distortion


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