Portfolio choice under cumulative prospect theory / Xue Dong He in Management science, Vol. 57 N° 2 (Février 2011)  

Public ISBD [article]  inManagement science > Vol. 57 N° 2 (Février 2011) . - pp. 315-331 Titre : Portfolio choice under cumulative prospect theory : An analytical treatment Type de document : texte imprimé Auteurs : Xue Dong He, Auteur ; Xun Yu Zhou, Auteur Année de publication : 2011 Article en page(s) : pp. 315-331 Note générale : Management Langues : Anglais (eng) Mots-clés : Portfolio choice Single period Cumulative prospect theory Reference point Loss aversion S-shaped utility function Probability weighting Well-posedness Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We formulate and carry out an analytical treatment of a single-period portfolio choice model featuring a reference point in wealth, S-shaped utility (value) functions with loss aversion, and probability weighting under Kahneman and Tversky's cumulative prospect theory (CPT). We introduce a new measure of loss aversion for large payoffs, called the large-loss aversion degree (LLAD), and show that it is a critical determinant of the well-posedness of the model. The sensitivity of the CPT value function with respect to the stock allocation is then investigated, which, as a by-product, demonstrates that this function is neither concave nor convex. We finally derive optimal solutions explicitly for the cases in which the reference point is the risk-free return and those in which it is not (while the utility function is piecewise linear), and we employ these results to investigate comparative statics of optimal risky exposures with respect to the reference point, the LLAD, and the curvature of the probability weighting. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/57/2/315 [article] Portfolio choice under cumulative prospect theory : An analytical treatment [texte imprimé] / Xue Dong He, Auteur ; Xun Yu Zhou, Auteur . - 2011 . - pp. 315-331. Management Langues : Anglais (eng) in Management science > Vol. 57 N° 2 (Février 2011) . - pp. 315-331 Mots-clés : Portfolio choice Single period Cumulative prospect theory Reference point Loss aversion S-shaped utility function Probability weighting Well-posedness Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We formulate and carry out an analytical treatment of a single-period portfolio choice model featuring a reference point in wealth, S-shaped utility (value) functions with loss aversion, and probability weighting under Kahneman and Tversky's cumulative prospect theory (CPT). We introduce a new measure of loss aversion for large payoffs, called the large-loss aversion degree (LLAD), and show that it is a critical determinant of the well-posedness of the model. The sensitivity of the CPT value function with respect to the stock allocation is then investigated, which, as a by-product, demonstrates that this function is neither concave nor convex. We finally derive optimal solutions explicitly for the cases in which the reference point is the risk-free return and those in which it is not (while the utility function is piecewise linear), and we employ these results to investigate comparative statics of optimal risky exposures with respect to the reference point, the LLAD, and the curvature of the probability weighting. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/57/2/315

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