TY - JOUR
T1 - Loss aversion, large deviation preferences and optimal portfolio weights for some classes of return processes
AU - Duffy, Ken
AU - Lobunets, Olena
AU - Suhov, Yuri
PY - 2007/5/15
Y1 - 2007/5/15
N2 - We propose a model of a loss averse investor who aims to maximize his expected wealth under certain constraints. The constraints are that he avoids, with high probability, incurring an (suitably defined) unacceptable loss. The methodology employed comes from the theory of large deviations. We explore a number of fundamental properties of the model and illustrate its desirable features. We demonstrate its utility by analyzing assets that follow some commonly used financial return processes: Fractional Brownian Motion, Jump Diffusion, Variance Gamma and Truncated Lévy.
AB - We propose a model of a loss averse investor who aims to maximize his expected wealth under certain constraints. The constraints are that he avoids, with high probability, incurring an (suitably defined) unacceptable loss. The methodology employed comes from the theory of large deviations. We explore a number of fundamental properties of the model and illustrate its desirable features. We demonstrate its utility by analyzing assets that follow some commonly used financial return processes: Fractional Brownian Motion, Jump Diffusion, Variance Gamma and Truncated Lévy.
UR - http://www.scopus.com/inward/record.url?scp=33847646828&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33847646828&partnerID=8YFLogxK
U2 - 10.1016/j.physa.2006.11.079
DO - 10.1016/j.physa.2006.11.079
M3 - Article
AN - SCOPUS:33847646828
SN - 0378-4371
VL - 378
SP - 408
EP - 422
JO - Physica A: Statistical Mechanics and its Applications
JF - Physica A: Statistical Mechanics and its Applications
IS - 2
ER -