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Another look at portfolio optimization with mental accounts

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  • Chiu, Wan-Yi

Abstract

Das et al. (2010, 2018)[11,12] numerically solve the portfolio optimization with mental accounts (POMA) problem, which maps the mean-variance theory and mean-variance utility into a behavioral portfolio theory. We derive a POMA closed-form solution based on the maximum Sharpe ratio and minimum value-at-risk (VaR) rule. The extension offers an alternate equivalence between the POMA problem, the mean-VaR model, and the generalized Sharpe measure. From the manageable VaR-measure perspective, our evidence indicates that many efficient portfolios are statistically equivalent to the global minimum variance portfolio under the estimation risk.

Suggested Citation

  • Chiu, Wan-Yi, 2022. "Another look at portfolio optimization with mental accounts," Applied Mathematics and Computation, Elsevier, vol. 419(C).
    • Handle: RePEc:eee:apmaco:v:419:y:2022:i:c:s0096300321009346
    DOI: 10.1016/j.amc.2021.126851
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    References listed on IDEAS

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