| Title: |
Key-words: Cumulative Prospect Theory, Portfolio Choice, Omega Measure, Optimal Insurance Demand. |
| Authors: |
Carole Bernard; Mario Ghossoub; Jel Codes G |
| Contributors: |
The Pennsylvania State University CiteSeerX Archives |
| Source: |
http://www.smu.ca/iarepsabe09/documents/Bernard_Ghossoub-A.pdf. |
| Publication Year: |
2009 |
| Collection: |
CiteSeerX |
| Description: |
1 Proposal for the IAREP / SABE joint seminar The present work is concerned with optimal decision making under Cumulative Prospect Theory (Tversky and Kahneman (1992)). We examine two very natural problems for which solutions are well-known under Expected Utility Theory, namely optimal portfolio choice and optimal insurance design within a prospect-theoretical framework. The first problem deals with how an investor optimizes her portfolio holding in a risky asset under Cumulative Prospect Theory, in a simple one-period static economy with one risk-free asset and one risky asset. The problem is simple but the results are new and interesting 1. The optimal holding (when it exists) is a function of a generalized Omega measure of the distribution of the excess return on the risky asset over the risk-free rate. It conceptually resembles Merton’s optimal holding for a CRRA or CARA expected-utility maximizer (Merton (1969, 1971)). We derive some properties of the optimal |
| Document Type: |
text |
| File Description: |
application/pdf |
| Language: |
English |
| Relation: |
http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.318.4707 |
| Availability: |
http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.318.4707; http://www.smu.ca/iarepsabe09/documents/Bernard_Ghossoub-A.pdf |
| Rights: |
Metadata may be used without restrictions as long as the oai identifier remains attached to it. |
| Accession Number: |
edsbas.7FA672AD |
| Database: |
BASE |