On Optimal Investment For A Behavioural Investor In Multiperiod Incomplete Market Models
The authors provide easily verifiable conditions for the well-posedness of the optimal investment problem for a behavioral investor in an incomplete discrete-time multiperiod financial market model, for the first time in the literature. Under suitable assumptions they also establish the existence of optimal strategies. In the paper Kahneman and Tversky (1979), based on experimentation, the authors contest the expected utility paradigm and propose the cumulative prospect theory. This theory asserts that: first, agents behave differently on gains and on losses. Second, agents overweight small probabilities and underweight large probabilities. Third, agents evaluate assets in comparison with some benchmark rather than based on final wealth positions.