Paper Info
Title
Behavioral Portfolio Optimization with Social Reference Point.
Abstract
In this study, we address the social interaction process in which PT (Prospect Theory) preferences are influenced by other market participants, e.g., regular CRRA (Constant Relative Risk Averse) investors or other PT investors, and study then the long run wealth convergence of the two trading parties: one PT agent vs. one CRRA agent or both agents of PT types. In the model with one PT agent vs. one CRRA agent, the PT agent knows the CRRA agent's optimal terminal wealth and takes it as his/her reference point. If the PT agent starts with an initial wealth level higher than that of the CRRA agent, he/she will always do better than the CRRA agent by imitating the CRRA agent's policy. On the other hand, if the PT agent starts with a wealth level lower than that of the CRRA agent, he/she can still do better than the CRRA agent by adopting a "gambling policy". When both trading parties are of PT type, we consider two types of reference points: either both PT agents take their average wealth as their reference point or they are mutually reference dependent. Under both situations, we give sufficient conditions on the long run wealth convergence.
Year
DOI
Venue
2015
10.1007/978-3-319-18161-5_23
MODELLING, COMPUTATION AND OPTIMIZATION IN INFORMATION SYSTEMS AND MANAGEMENT SCIENCES - MCO 2015, PT 1
Keywords
Field
DocType
Portfolio optimization,reference point,prospect theory,social comparison,relative wealth concern
Convergence (routing),Mathematical optimization,Computer science,Prospect theory,Portfolio optimization,Social comparison theory
Conference
Volume
ISSN
Citations 
359
2194-5357
0
PageRank 
References 
Authors
0.34
0
3
Name
Order
Citations
PageRank
Yun Shi100.34
Duan Li25612.31
Xiangyu Cui3104.06