Periodic portfolio selection with quasi-hyperbolic discounting

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• Alex Tse (UCL)
• Thursday 26 October 2023, 13:00-14:00
• Castle Teaching Room.

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We introduce a continuous-time portfolio selection problem faced by an agent with S-shaped preference and present bias, whose goal is to maximise utilities derived from the portfolio’s periodic performance over an infinite horizon. The underlying quasi-hyperbolic discount function induces time-inconsistency and different notions of optimality are discussed. Interestingly, there are cases in which agent’s present bias and naivety will result in more desirable risk-taking behaviours via moderating excessive leverage and underinvestment in the extreme states of the world.

This talk is part of the Cambridge Finance Workshop Series series.

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