Systemic Risk and Overconfidence under Stochastic Environment
Speaker: Li-Hsien Sun
Affiliation: National Central University
Abstract
We propose an optimal portfolio problem based on the mean variance criterion based on the relative performance with the feature of overconfidence. Namely, investors intend to maximize the distance between the average and minimize their own variance as well. In the meantime, they also consider the better return than the real one due to overconfidence. We illustrate systemic risk by applying the probability of the large number of defaults. Finally, the influence of overconfidence is discussed through numerical analysis.
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