Seminar series
Date
Thu, 19 Feb 2009
13:00
13:00
Location
DH 1st floor SR
Speaker
Xuedong He
In this paper we employ the quantile formulation to solve the SP/A portfolio choice model in continuous time. We show that the original version of the SP/A model proposed by Lopes is ill-posed in the continuous-time setting. We then generalise the SP/A model to one where a utility function is included, while the probability weighting
(distortion) function is still present. The feasibility and well-posedness of the model are addressed and an explicit solution is derived. Finally, we study how the aspiration level and the probability weighting function affect the optimal solution