Tse, Alex Sing-Lam (2016) Dynamic economic decision problems under behavioural preferences and market imperfections. PhD thesis, University of Warwick.

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Abstract

This thesis is a collection of three individual works on dynamic economic decision problems which go beyond expected utility maximisation in complete markets. The first chapter introduces an asset liquidation model under prospect theory preferences. We demonstrate that the probability weighting component of the model can predict liquidation strategies which better fit the empirical patterns of investors’ stock trading behaviours, when compared to models which do not incorporate probability weighting. The second chapter explores the role of randomised strategies in an exit-timing problem faced by a prospect theory agent. Several new insights are offered: in a discrete model, access to randomisation can strictly improve the economic value to the agent; in a continuous time counterpart, allowing randomisation will significantly alter the prediction of an agent’s behaviours and more realistic exit-strategies would be observed in contrast to the results from the existing literature. The final chapter studies an extension to the Merton’s optimal investment and consumption problem under transaction costs, where the agent can also dynamically invest in a liquid hedging asset without a trading fee. We provide a complete solution. Important properties of the problem such as well-posedness conditions and comparative static results are derived.

Item Type:	Thesis or Dissertation (PhD)
Subjects:	H Social Sciences > HB Economic Theory
Library of Congress Subject Headings (LCSH):	Economics -- Mathematical models, Investments -- Decision making, Probabilities
Official Date:	December 2016
Dates:	Date Event December 2016 Submitted
Institution:	University of Warwick
Theses Department:	Department of Statistics
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Hobson, David ; Henderson, Vicky
Sponsors:	University of Warwick. Chancellor International Scholarship
Format of File:	pdf
Extent:	xiv, 143 leaves : illustrations, charts
Language:	eng

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