Which Optimal Design For LLDAs?

Marie Pfiffelmann ()

Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) from Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg (France)

Abstract: Lottery-linked deposit accounts are financial assets that provide an interest rate determined by a lottery. The aim of this study is to determine the optimal design of these financial assets (under cumulative prospect theory (CPT) framework). We underline that the weighting functions usually specified in the literature should be re-modeled if we want to apply CPT to finance. We propose to replace them by another functional form that preserves the main characteristics of the inverse S-shape specification, but whose slope at zero is finite. The optimal structure of payments obtained is consistent with the conclusions of behavioral portfolio theory (2000).

Keywords: Lottery-Linked-Deposit Account; Cumulative Prospect Theory; Design optimal; Probability Weighting. (search for similar items in EconPapers)
JEL-codes: D81 G11 C01 (search for similar items in EconPapers)
Date: 2006
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Persistent link: http://EconPapers.repec.org/RePEc:lar:wpaper:2006-06

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