Optimal Portfolio Choice for a Behavioural Investor in Continuous-Time Markets

Details Optimal Portfolio Choice for a Behavioural Investor in Continuous-Time Markets Optimal Portfolio Choice for a Behavioural Investor in Continuous-Time Markets

2012-02-03

arxiv.org/abs/1202.0628v1

Economy

Quantitative Finance

Portfolio Management

Scientific paper

The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time financial market framework and assuming that asset prices are modelled by semimartingales, we derive sufficient and necessary conditions for the well-posedness of the optimisation problem in the case of piecewise-power probability distortion and utility functions. Finally, under straightforwardly verifiable conditions, we further demonstrate the existence of an optimal strategy.

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