Leon Guerrero, University of Central Florida


Optimization of Some Behavioral Portfolio Selection Problems

Abstract: We formulate and analyze a general discrete-time behavioral portfolio selection model, featuring S-shaped value functions and probability distortion functions. We consider other models as special cases of the general discrete formulation, including the expected utility maximization model, Yaaris' dual theory, Lopes' SP/A theory, and Kahneman and Tversky's Nobel-prize winning cumulative prospect theory (CPT). Some results on the optimization problems involving the resulting model will be presented, including some numerical simulations. A possible extension to continuous-time cases will also be discussed.

Advisor: Jiongmin Yong (University Central Florida)