We develop an algorithm to compute asset allocations for Kahneman and Tversky's (1979) prospect theory. An application to benchmark data as in Fama and French (1992) shows that the equity premium puzzle is resolved for parameter values similar to those found in the laboratory experiments of...

Estimation of dynamic asset pricing models based on Generalized Method of moments is known to be inefficient and biased. One strand of the literature has provided more efficient estimators based on moment conditions. Here, we present an estimation method based on the numerical solution of the...