Cumulative Prospect Theory portfolio selection

Diana Barro (), Marco Corazza () and Martina Nardon ()
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Diana Barro: Department of Economics, Ca' Foscari University of Venice

No 2020:26, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: We introduce elements of Cumulative Prospect Theory into the portfolio selection problem and then compare stock portfolios selected under the behavioral approach with those selected according to classical approaches, such as Mean Variance and Mean Absolute Deviation ones. The mathematical programming problem associated to the behavioral portfolio selection is highly non-linear and non-differentiable; for these reasons it is solved using a Particle Swarm Optimization approach. An application to the STOXX Europe 600 equity market is performed.

Keywords: Cumulative Prospect Theory; Portfolio Selection; Particle Swarm Optimization (search for similar items in EconPapers)
JEL-codes: C61 G11 G40 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2020:26

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