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                                                     Seminar

             Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong

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Title	:	Optimal Stopping under Prospect Preference
Speaker	:	Dr. Zuoquan Xu
		University of Oxford
Date	:	Sep 30th, 2010 (Thursday)
Time	:	11:30 a.m. - 12:30 a.m.
Venue	:	Room 513
		William M.W. Mong Engineering Building
		(Engineering Building Complex Phase 2)
		CUHK

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Abstract:
　

Prospect theory, featuring S-shaped utility (value) function and probability distortion, proposed in Kahneman and 
Tversky (1979) has been widely accepted as a successful supplement and extension of traditional expected utility theory. 

In this paper, we study general optimal stopping under prospect preference problems. All the three key features in 
prospect theory are considered in our problems. In particular, probability distortion is considered in such problems for 
the first time. Probability distortion has destroyed the time-consistency structure of the problems which leads to the 
failure of using dynamic programming and stochastic control approach to solve the problems. With the help of 
distribution/quantile formulation and Skorokhod embedding theorem, we propose a three-step procedure to solve the 
problems. The optimal stopping times turn out to be highly depending on the shapes of the utility function and probability 
distortion function. In particular, we have re-found and generalized the results that have been obtained without 
considering  probability distortion in the literature. The main contribution of this paper is tackling the time-inconsistency 
arising from the probability distortion in the optimal stopping problems.

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Biography:
　

Zuoquan Xu got his BSc in applied math from Nankai University, his MPhil degree in mathematical finance from Peking 
University, and his Ph.D. degree in systems engineering and engineering management from The Chinese University of 
Hong Kong. 
 
He joined University of Oxford as a Nomura junior research fellow in mathematical finance since 2007. His research 
interests include mathematical finance, stochastic control, free boundary problems in PDE.

************************* ALL ARE WELCOME ************************

Host	:	Prof. Duan Li
Tel	:	(852)2609 8316/8323
Email	:	dli@se.cuhk.edu.hk
Enquiries	:	Prof. Nan Chen or Prof. Sean X. Zhou
	:	Department of Systems Engineering and Engineering Management
		CUHK
Website	:	http://www.se.cuhk.edu.hk/~seem5201
Email	:	seem5201@se.cuhk.edu.hk

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