We formulate and carry out an analytical treatment of a single-period portfolio choice model featuring a reference point in wealth, S-shaped utility (value) functions with loss aversion, and probability weighting under Kahneman and Tversky's cumulative prospect theory (CPT). We introduce a new...

This paper quantifies the notion of greed, and explores its connection with leverage and potential losses, in the context of a continuous-time behavioral portfolio choice model under (cumulative) prospect theory. We argue that the reference point can serve as the critical parameter in defining...