Investment Analysis Based On Behavioral Prospect Theory

This paper wants to explore a way which can use real option theory and behavioral finance method to build models, and we hope which can be more close to the real market. In the real market, the investors are not all rational, they may be affected by heterogeneous behavioral factors. Overconfidence is a very impotent kind of behavioral characters. The psychologic research find that many people had been affect by Overconfidence. So this paper wants to find how Overconfidence can influence investor under uncertainty.This paper contains the following part:1 Building the Binary Tree model for the two stage investment by prospect theory, under uncertainty. Analysing the difference of the overconfidence investor and the classical investor(the investor in classical economics). The overconfidence investor will set store by invest option, and they may cost more than the investor in classical economics;2 Research how the overconfidence investor do in continue-time, under uncertainty. The conclusion is that when the probability of grave risk of Negative external effect, the optimal Implementation of the Boundary of the invest option will increase rapidly, if the overconfidence investor don't only consider himself. And when the probability of grave risk of Negative external effect is low, the Implementation of the Boundary about the investment of overconfidence investor'who don't only consider himself will lower than classical investor who don't only consider himself too.3 Because overconfidence investor will believe the probability of the massage which take effect to the investment, they may be apt to believe it can be true really. This part research the effect of the good news to the overconfidence investor. The conclusion is that the uncertainty of the good information will very strongly affect the overconfidence investor.4 Building a game's model about pollution supervising which is joined by overconfidence investor and the government. Through analyzing and computing , the overconfidence investor'characteristic can be more clear.