Imperial College London
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DrAlexTse

Faculty of Natural Sciences, Department of Mathematics

Casual - Visiting Lecturer
 
 
 
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Contact

 

a.tse Website

 
 
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Location

 

705Weeks BuildingSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{Henderson:2018:10.1016/j.jet.2018.10.002,
author = {Henderson, V and Hobson, D and Tse, ASL},
doi = {10.1016/j.jet.2018.10.002},
journal = {Journal of Economic Theory},
pages = {360--397},
title = {Probability weighting, stop-loss and the disposition effect},
url = {http://dx.doi.org/10.1016/j.jet.2018.10.002},
volume = {178},
year = {2018}
}
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RIS format (EndNote, RefMan)

TY  - JOUR
AB  - In this paper we study a continuous-time, optimal stopping model of an asset sale with prospect theory preferences under pre-commitment. We show for a wide range of value and probability weighting functions, including those of Tversky and Kahneman (1992), that the optimal prospect takes the form of a stop-loss threshold and a distribution over gains. It is skewed with a long right tail. This is consistent with both the widespread use of stop-loss strategies in financial markets, and recent experimental evidence. Moreover, our model with probability weighting in tandem with the S-shaped value function makes predictions for the disposition effect which match in magnitude that calculated by Odean (1998).
AU  - Henderson,V
AU  - Hobson,D
AU  - Tse,ASL
DO  - 10.1016/j.jet.2018.10.002
EP  - 397
PY  - 2018///
SN  - 0022-0531
SP  - 360
TI  - Probability weighting, stop-loss and the disposition effect
T2  - Journal of Economic Theory
UR  - http://dx.doi.org/10.1016/j.jet.2018.10.002
UR  - http://hdl.handle.net/10044/1/65307
VL  - 178
ER  -
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