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.
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.
Cumulative Prospect Theory portfolio selection
Diana Barro
;Marco Corazza
;Martina Nardon
2020-01-01
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.
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