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Stochastic Maximum Principle Under Probability Distortion

  • Qizhu Liang
  • Jie XiongEmail author
Article
  • 23 Downloads

Abstract

Within the framework of the cumulative prospective theory of Kahneman and Tversky, this paper considers a continuous-time behavioral portfolio selection problem whose model includes both running and terminal terms in the objective functional. Despite the existence of S-shaped utility functions and probability distortions, a necessary condition for the optimality is derived. The results are applied to a few examples.

Keywords

Cumulative prospective theory S-shaped utility function Probability distortion Stochastic maximum principle Behavioral portfolio optimization 

AMS subject classifications

Primary 93E20 Secondary 91G80 

Notes

Acknowledgements

We would like to than an anonymous reviewer for his/her constructive comments and suggestions which improve this paper substantially.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of MathematicsUniversity of MacauMacauChina
  2. 2.Department of Mathematics and SUSTech International Center for MathematicsSouthern University of Science and TechnologyShenzhenChina

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