Portfolio choice in the model of expected utility with a safety-first component

2021 ◽  
Author(s):  
Dennis W. Jansen ◽  
Liqun Liu
Keyword(s):  
Portfolio Choice ◽  
Expected Utility ◽  
Safety First

OPTIMAL PORTFOLIO UNDER STATE-DEPENDENT EXPECTED UTILITY

2018 ◽  
Vol 21 (03) ◽  
pp. 1850013 ◽  
Author(s):  
CAROLE BERNARD ◽  
STEVEN VANDUFFEL ◽  
JIANG YE
Keyword(s):  
Portfolio Choice ◽  
Expected Utility ◽  
Loss Aversion ◽  
Reference Point ◽  
Joint Distribution ◽  
Optimal Portfolio ◽  
Characterization Result ◽  
Terminal Wealth ◽  
Utility Maximizer ◽  
State Dependent

We derive the optimal portfolio for an expected utility maximizer whose utility does not only depend on terminal wealth but also on some random benchmark (state-dependent utility). We then apply this result to obtain the optimal portfolio of a loss-averse investor with a random reference point (extending a result of Berkelaar et al. (2004) Optimal portfolio choice under loss aversion, The Review of Economics and Statistics 86 (4), 973–987). Clearly, the optimal portfolio has some joint distribution with the benchmark and we show that it is the cheapest possible in having this distribution. This characterization result allows us to infer the state-dependent utility function that explains the demand for a given (joint) distribution.

Dynamic safety first expected utility model

2018 ◽  
Vol 271 (1) ◽  
pp. 141-154 ◽  
Author(s):  
Mei Choi Chiu ◽  
Hoi Ying Wong ◽  
Jing Zhao
Keyword(s):  
Expected Utility ◽  
Utility Model ◽  
Expected Utility Model ◽  
Safety First

Comment: "Safety First--An Expected Utility Principle"

1974 ◽  
Vol 9 (6) ◽  
pp. 1057 ◽  
Author(s):  
Nicolas Gressis ◽  
William A. Remaley
Keyword(s):  
Expected Utility ◽  
Safety First

Information, Expected Utility, and Portfolio Choice

2009 ◽  
Author(s):  
Jun Liu ◽  
Ehud Peleg ◽  
Avanidhar Subrahmanyam
Keyword(s):  
Portfolio Choice ◽  
Expected Utility

Safety First--An Expected Utility Principle

1972 ◽  
Vol 7 (3) ◽  
pp. 1829 ◽  
Author(s):  
Haim Levy ◽  
Marshall Sarnat
Keyword(s):  
Expected Utility ◽  
Safety First

Reply: "Safety First--An Expected Utility Principle"

1974 ◽  
Vol 9 (6) ◽  
pp. 1063 ◽  
Author(s):  
Haim Levy ◽  
Marshall Sarnat
Keyword(s):  
Expected Utility ◽  
Safety First

scholarly journals Pessimistic Portfolio Choice with One Safe and One Risky Asset and Right Monotone Probability Difference Order

2013 ◽  
Vol 2013 ◽  
pp. 1-10 ◽  
Author(s):  
Jiangfeng Li ◽  
Qiong Wu ◽  
Zhiqiang Ye ◽  
Shunming Zhang
Keyword(s):  
Portfolio Choice ◽  
Expected Utility ◽  
Comparative Statics ◽  
Risky Asset ◽  
Stochastic Orders ◽  
Monotone Likelihood Ratio ◽  
Changes In Risk ◽  
The Right ◽  
Monotone Probability ◽  
The Relationship

As is well known, a first-order dominant deterioration in risk does not necessarily cause a risk-averse investor to reduce his holdings of that deteriorated asset under the expected utility framework, even in the simplest portfolio setting with one safe asset and one risky asset. The purpose of this paper is to derive conditions on shifts in the distribution of the risky asset under which the counterintuitive conclusion above can be overthrown under the rank-dependent expected utility framework, a more general and prominent alternative of the expected utility. Two new criterions of changes in risk, named the monotone probability difference (MPD) and the right monotone probability difference (RMPD) order, are proposed, which is a particular case of the first stochastic dominance. The relationship among MPD, RMPD, and the other two important stochastic orders, monotone likelihood ratio (MLR) and monotone probability ratio (MPR), is examined. A desired comparative statics result is obtained when a shift in the distribution of the risky asset satisfies the RMPD criterion.

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