Portfolio choice with endogenous utility: a large deviations approach
نویسنده
چکیده
This paper provides an alternative behavioral foundation for an investor’s use of power utility in the objective function and its particular risk aversion parameter. The foundation is grounded in an investor’s desire to minimize the objective probability that the growth rate of invested wealth will not exceed an investor-selected target growth rate. Large deviations theory is used to show that this is equivalent to using power utility, with an argument that depends on the investor’s target, and a risk aversion parameter determined by maximization. As a result, an investor’s risk aversion parameter is not independent of the investment opportunity set, contrary to the standard model assumption. c © 2003 Elsevier B.V. All rights reserved. JEL classi$cation: C4; D8; G0
منابع مشابه
A Regret Minimization Approach in Product Portfolio Management with respect to Customers’ Price-sensitivity
In an uncertain and competitive environment, product portfolio management (PPM) becomes more challenging for manufacturers to decide what to make and establish the most beneficial product portfolio. In this paper, a novel approach in PPM is proposed in which the environment uncertainty, competitors’ behavior and customer’s satisfaction are simultaneously considered as the most important criteri...
متن کاملBehavioral Portfolio Choice: An Analytical Treatment∗
This paper formulates a single-period portfolio choice model under Kahneman and Tversky’s cumulative prospect theory, featuring a reference point in wealth, S-shaped utility (value) functions with loss aversion, and distortions in probability. An analytical treatment of the model is carried out. A new measure of loss aversion for large payoffs, called the loss aversion degree (LAD), is introduc...
متن کاملMulti Objective Scheduling of Utility-scale Energy Storages and Demand Response Programs Portfolio for Grid Integration of Wind Power
Increasing the penetration of variable wind generation in power systems has created some new challenges in the power system operation. In such a situation, the inclusion of flexible resources which have the potential of facilitating wind power integration is necessary. Demand response (DR) programs and emerging utility-scale energy storages (ESs) are known as two powerful flexible tools that ca...
متن کاملA large deviations approach to optimal long term investment
We consider an investment model where the objective is to overperform a given benchmark or index. We study this portfolio management problem for a long term horizon. This asymptotic criterion leads to a large deviation probability control problem. Its dual problem is an ergodic risk sensitive control problem on the optimal logarithmicmoment generating function that is explicitly derived.A caref...
متن کاملThe Stabilizing Virtues of Fiscal vs. Monetary Policy on Endogenous Bubble Fluctuations
We explore the existence of endogenous fluctuations with a rational bubble and the stabilizing role of fiscal and monetary policies. Consumers’ credit constraints, the role of collateral and a portfolio choice are the key ingredients of our analysis. We consider an overlapping generations model where households realize a portfolio choice between three assets with different returns (capital, mon...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2003