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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Cumulative prospect theory and mean variance analysis. A rigorous comparison |
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| Institution | University of Zurich |
| Series Name | NCCR FINRISK Working Paper |
| Number | 792 |
| ISSN | 1380-6645 |
| Number of Pages | 51 |
| Date | 2012 |
| Abstract Text | We compare asset allocations derived for cumulative prospect theory(CPT) based on two different methods: Maximizing CPT along the mean–variance efficient frontier and maximizing it without that restriction. We find that with normally distributed returns the difference is negligible. However, using standard asset allocation data of pension funds the difference is considerable. Moreover, with derivatives like call options the restriction to the mean-variance efficient frontier results in a sizable loss of e.g. expected return and expected utility. |
| Official URL | http://www.nccr-finrisk.uzh.ch/media/pdf/wp/WP792_A1.pdf |
| Other Identification Number | merlin-id:7207 |
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