Another look at portfolio optimization with mental accounts

Wan-Yi Chiu

Applied Mathematics and Computation, 2022, vol. 419, issue C

Abstract: Das et al. (2010, 2018)[11,12] numerically solve the portfolio optimization with mental accounts (POMA) problem, which maps the mean-variance theory and mean-variance utility into a behavioral portfolio theory. We derive a POMA closed-form solution based on the maximum Sharpe ratio and minimum value-at-risk (VaR) rule. The extension offers an alternate equivalence between the POMA problem, the mean-VaR model, and the generalized Sharpe measure. From the manageable VaR-measure perspective, our evidence indicates that many efficient portfolios are statistically equivalent to the global minimum variance portfolio under the estimation risk.

Keywords: Safety-first; Mean-variance portfolio; Mean-VaR model; Sharpe ratio; Value-at-risk; Behavioral portfolio (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:419:y:2022:i:c:s0096300321009346

DOI: 10.1016/j.amc.2021.126851

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