Dynamic portfolio selection under generalized disappointment aversion
arxiv(2024)
摘要
This paper addresses the continuous-time portfolio selection problem under
generalized disappointment aversion (GDA). The implicit definition of the
certainty equivalent within GDA preferences introduces time inconsistency to
this problem. We provide the sufficient and necessary conditions for a strategy
to be an equilibrium by a fully nonlinear ordinary differential equation (ODE).
Through an exploration of the existence and uniqueness of solution to the ODE,
we establish the existence and uniqueness of the equilibrium. Our findings
indicate that under disappointment aversion (DA) preferences, non-participation
in the stock market is the unique equilibrium. The numerical analysis reveals
that, under GDA preferences, the investment proportion in the stock market
consistently remains smaller than the investment proportion under the classical
Expected Utility (EU) theory.
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