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Dynamic asset allocation with loss aversion in a jump-diffusion model. (English) Zbl 1319.91146

Summary: This paper investigates a dynamic asset allocation problem for loss-averse investors in a jump-diffusion model where there are a riskless asset and \(N\) risky assets. Specifically, the prices of risky assets are governed by jump-diffusion processes driven by an \(m\)-dimensional Brownian motion and a \((N-m)\)-dimensional Poisson process. After converting the dynamic optimal portfolio problem to a static optimization problem in the terminal wealth, the optimal terminal wealth is first solved. Then the optimal wealth process and investment strategy are derived by using the martingale representation approach. The closed-form solutions for them are finally given in a special example.

MSC:

91G10 Portfolio theory
60J75 Jump processes (MSC2010)
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References:

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