TY - JOUR
T1 - Portfolio choice under cumulative prospect theory
T2 - sensitivity analysis and an empirical study
AU - Consigli, Giorgio
AU - Hitaj, Asmerilda
AU - Mastrogiacomo, Elisa
N1 - Funding Information:
Acknowledgements The authors would like to thank the Editor and the anonymous Referees for their helpful comments. All remaining errors are responsibility of the authors. Asmerilda Hitaj and Elisa Mastro-giacomo want to acknowledge GNAPMA for the financial support of the project ’Levy processes, stochastic control and portfolio optimization’.
Publisher Copyright:
© 2018, Springer-Verlag GmbH Germany, part of Springer Nature.
PY - 2019/2/27
Y1 - 2019/2/27
N2 - A sensitivity analysis of the impact of cumulative prospect theory (CPT) parameters on a Mean/Risk efficient frontier is performed through a simulation procedure, assuming a Multivariate Variance Gamma distribution for log-returns. The optimal investment problem for an agent with CPT preferences is then investigated empirically, by considering different parameters’ combinations for the CPT utility function. Three different portfolios, one hedge fund and two equity portfolios are considered in this study, where the Modified Herfindahl index is used as a measure of portfolio diversification, while the Omega ratio and the Information ratio are used as measures of performance.
AB - A sensitivity analysis of the impact of cumulative prospect theory (CPT) parameters on a Mean/Risk efficient frontier is performed through a simulation procedure, assuming a Multivariate Variance Gamma distribution for log-returns. The optimal investment problem for an agent with CPT preferences is then investigated empirically, by considering different parameters’ combinations for the CPT utility function. Three different portfolios, one hedge fund and two equity portfolios are considered in this study, where the Modified Herfindahl index is used as a measure of portfolio diversification, while the Omega ratio and the Information ratio are used as measures of performance.
KW - Cumulative prospect theory
KW - Hedge funds
KW - Non-convex optimization
KW - Robustness and sensitivity analysis
UR - http://www.scopus.com/inward/record.url?scp=85051849355&partnerID=8YFLogxK
U2 - 10.1007/s10287-018-0333-x
DO - 10.1007/s10287-018-0333-x
M3 - Article
AN - SCOPUS:85051849355
SN - 1619-697X
VL - 16
SP - 129
EP - 154
JO - Computational Management Science
JF - Computational Management Science
IS - 1-2
ER -