Optimal Investment under Behavioral Criteria in Incomplete Diffusion Market Models
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Publication:3178729
DOI10.1137/S0040585X97T987892zbMATH Open1352.91031arXiv1501.01504OpenAlexW2962996260MaRDI QIDQ3178729FDOQ3178729
Authors: Miklós Rásonyi, José G. Rodríguez-Villarreal 
Publication date: 7 December 2016
Published in: Theory of Probability & Its Applications (Search for Journal in Brave)
Abstract: The most commonly accepted model for investors' preferences is expected utility theory. More recently, other theories have emerged and pose new challenges to mathematics. The present paper treats preferences of cumulative prospect theory (CPT), where an "S-shaped" utility function is considered (i.e. convex up to a certain point and concave from there on). Also, distorted probability measures are applied for calculating the utility of a given position with respect to a (possibly random) benchmark . Such problems have heretofore been solved essentially for complete continuous-time market models only. In the present paper we make a step forward and consider incomplete models of a diffusion type where the return of the investment in consideration depends on some economic factors. Our main result asserts, under mild assumptions, the existence of an optimal strategy when the driving noise of the economic factors is independent of that of the investment and the rate of return is non-negative. We are also able to accommodate models of a specific type where the factor may have non-zero correlation with the investment.
Full work available at URL: https://arxiv.org/abs/1501.01504
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Cited In (4)
- Title not available (Why is that?)
- Portfolio optimization: not necessarily concave utility and constraints on wealth and allocation
- Consistent investment of sophisticated rank‐dependent utility agents in continuous time
- Skorohod's Representation Theorem and Optimal Strategies for Markets with Frictions
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