In this paper, we study the optimal portfolio selection problem for weakly informed traders in the sense of Baudoin [Stochastic Process. Appl., 100 (2002), pp. 109-145]. Apart from expected utility maximizers, we consider investors with other preference paradigms. In particular, we consider agents following cumulative prospect theory as developed by Tversky and Kahneman [J. Risk Uncertainty, 5 (1992), pp. 297-323] as well as Yaari's dual theory of choice [Econometrica, 55 (1987), pp. 95-115]. We solve the corresponding optimization problems, in both noninformed and informed case, i.e., when the agent has an additional weak information. Finally, comparison results among investors with different preferences and information sets are given, together with explicit examples. In particular, the insider's gain, i.e., the difference between the optimal values of an informed and a noninformed investor, is explicitly computed.

Weak insider trading and behavioral finance / L. Campi, M. Del Vigna. - In: SIAM JOURNAL ON FINANCIAL MATHEMATICS. - ISSN 1945-497X. - 3:1(2012), pp. 242-279. [10.1137/110824693]

Weak insider trading and behavioral finance

L. Campi;
2012

Abstract

In this paper, we study the optimal portfolio selection problem for weakly informed traders in the sense of Baudoin [Stochastic Process. Appl., 100 (2002), pp. 109-145]. Apart from expected utility maximizers, we consider investors with other preference paradigms. In particular, we consider agents following cumulative prospect theory as developed by Tversky and Kahneman [J. Risk Uncertainty, 5 (1992), pp. 297-323] as well as Yaari's dual theory of choice [Econometrica, 55 (1987), pp. 95-115]. We solve the corresponding optimization problems, in both noninformed and informed case, i.e., when the agent has an additional weak information. Finally, comparison results among investors with different preferences and information sets are given, together with explicit examples. In particular, the insider's gain, i.e., the difference between the optimal values of an informed and a noninformed investor, is explicitly computed.
weak information; insider trading; behavioral finance; loss aversion; probability distortion; minimal probability measure; Yaari's dual theory of choice
Settore MAT/06 - Probabilita' e Statistica Matematica
2012
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/751149
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