Portfolio Model Based On Mixed Exponential Loss Aversion Function

Traditional portfolio theory studies the asset allocation problem of ”rational investor”.However,investors aren't completely rational actor in the real investment decision-making process,its investment decision-making behaviour is often influenced by the investor's prior experience with the asset and the degree of risk preference.And in investment activity,the mood of the investors are always changing,it affects the decision-making behavior of investors,many scholars have conducted a lot of empirical research,confirmed that the investors in the investment decision-making process will be affected by cognitive factors,emotional factors.Therefore,this paper applies the prospect theory to the portfolio research in order to further match the research results with the real investment decision-making process.Based on the linear loss aversion function and the principle of diminishing marginal utility,this paper presents a new utility function-mixed exponential loss aversion function.According to the expected utility maximization principle,this paper builds portfolio model based on mixed exponential loss aversion function,and the portfolio model under two states is respectively considered: one is a static portfolio model,we study the explicit expression of static portfolio model when n dimension asset return is normal distribution and the optimal solution of static portfolio model when two asset return is discrete distribution and continuous distribution.We use the data of China's stock market in the past three years to carry on the empirical analysis to it,the empirical results show that the sensitivity of the static mixed exponential loss aversion portfolio model to the change of loss aversion coefficient is higher than that of the static linear loss aversion portfolio model and the static mixed exponential loss aversion portfolio model is more effective than traditional mean-variance model.Another is a dynamic portfolio model,considering the dynamic change of loss aversion coefficient and reference point,two kinds of conservative investor's parameter change models are proposed by using the idea of relative growth,and the portfolio models in two dynamic situations are established.Through empirical analysis and comparison with static portfolio model,it shows that the dynamic portfolio model is more effective than the static portfolio model.