Publication
Title
A cumulative prospect view on portfolios that hold structured products
Author
Abstract
Many investors hold structured products in their portfolio. The current paper develops a break-even analysis on how this presence of structured products can be understood based on cumulative prospect theory. The framework provides additional insights into the behavioral conditions and required return expectations that make investors buy into expensive structured products with uncertain rewards. We make the strong assumption that the structured product has a zero prospect value when considered as a stand-alone investment. Still the optimized portfolio typically includes structured products. The degree of probability distortion determines the entry of structured products in the optimal portfolio. Once included it is the curvature of the value function that guides the actual weight of structured products and the potential increase in portfolio prospect value. Structured products receive a higher weight and increase the portfolio prospect value more if the investor is less conservative.
Language
English
Source (journal)
The journal of behavioral finance. - Place of publication unknown
Publication
Place of publication unknown : 2015
ISSN
1542-7560
Volume/pages
16:4(2015), p. 297-310
ISI
000366387100002
Full text (Publisher's DOI)
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 15.01.2016
Last edited 09.06.2017
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