SP/A Portfolio Choice Model in Continuous Time
|
Thu, 19/02/2009 13:00 |
Xuedong He |
Mathematical Finance Internal Seminar  |
DH 1st floor SR |
| 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 | |||