Cumulative Prospect Theory with Generalized Hyperbolic Skewed t Distribution

We investigate a one-period portfolio optimization problem of a cumulative prospect theory (CPT) investor with multiple risky assets and one risk-free asset. The returns of the multiple risky assets follow a multivariate generalized hyperbolic (GH) skewed t distribution. We obtain a three-fund separation result comprised of two risky portfolios and the risk-free asset. Furthermore, we reduce the high-dimensional optimization problem to two …