A Study Of Optimal Consumption And Portfolio Selection Theory Of Loss Aversion

Since the 20th Century,based on the capital asset pricing model and modern portfolio theory,the standard finance theory has established the position in the field of Finance and economy,and has became the mainstream of modern financial theory.However,with the accumulation of abnormal phenomena in the financial market and the increasing attention to the research of financial anomalies,the standard financial theory has been challenged.Its theoretical perfection and its practical significance in the feeble,which led to some new financial theory trying to explain the phenomenon of financial anomalies,and behavioral finance theory is one of them.In the behavioral finance theory,the study of the investment and consumption of the investor takes into account the human psychology and behavior,which will make the financial theory and the reality of the gap has been bridged.In 1979,Kahneman and Tversky jointly proposed the prospect theory,making it a representative theory of behavioral finance research.In the framework of prospect theory,this paper studies the investment portfolio and consumption problem of loss averse investors and this will allow the model to be further compensated with the reality.However,with the development of our country,China's economy will be in a long period of inflation.Therefore,we should consider the impact of inflation on the consumption and portfolio problems with loss aversion.This will make the model closer to reality,and the conclusion is more realistic economic significance.Finally,in an inflationary environment,the assets of the investor are not eroded and the interests of the investor are maximized.Therefore,in the inflation environment,the consumption and portfolio problem of loss averse investors is worth studying.This thesis studies the impact of inflation on optimal investment and consumption of loss averse investors.The thesis consists of the following four chapters:In the first chapter,the development of modern investment theory and the rise of behavioral finance theory are described.Finally,the research status at home and abroad is introduced.In the second chapter,we are using Ito formula to derive the price process of the risk assets after inflation discount.Then,according to the dynamic equation of wealth after the discount price of risk assets expressed and the two-part power utility function,the maximum value problem is established and then we use the martingale method and the duality technique to derive the optimal consumption and portfolio.The numerical analysis of the model with the economic explanation is given.Finally,to investigate the impact of implementing suboptimal consumption and portfolio strategies on the agent's welfare,we conduct a welfare analysis.In the third chapter,we use the model framework of the previous chapter.The effect of inflation on the optimal consumption and portfolio of investors is studied by extending the utility function of the investor to the more general kink HARA utility function.Then,the optimal consumption and portfolio of investors are obtained by using the martingale method.The impact of inflation on consumption and portfolio is analyzed by numerical simulation.In the fourth chapter,we give the summary and prospect of the whole thesis,outline the research results of the whole thesis,and analyze the shortcomings improvement of the thesis...