Behavioural Finance for Private Banking

Abstract

Preface. 1. INTRODUCTION. 1.1 The Private Banking Business. 1.2 Current Challenges in Private Banking. 1.3 Improving Service Quality with Behavioural Finance. 1.4 Conclusion0. 2. DECISION THEORY. 2.1 Introduction. 2.2 Mean-Variance Analysis. 2.3 Expected Utility Theory. 2.4 Prospect Theory. 2.5 Prospect Theory and the Optimal Asset Allocation. 2.6 A Critical View on Mean-Variance Theory. 2.7 A Critical View on Expected Utility Axioms. 2.8 Comparison of Expected Utility, Prospect Theory, and Mean Variance Analysis. 2.9 Conclusion. 3. BEHAVIOURAL BIASES. 3.1 Information Selection Biases. 3.2 Information-Processing Biases. 3.3 Decision Biases. 3.4 Decision Evaluation Biases. 3.5 Biases in Inter-Temporal Decisions. 3.6 Behavioural Biases and Speculative Bubbles. 3.7 Cultural Differences in the Behavioural Biases. 4. RISK PROFILING. 4.1 Dealing with Behavioural Biases. 4.2 The Risk Profiler and its Benefits. 4.3 Designing a Risk Profiler: Some General Considerations. 4.4 Implemented Risk Profilers: Case Study former Bank Leu. 4.5 A Risk Profiler Based on the Mean-Variance Analysis. 4.6 Integrating Behavioural Finance in the Risk Profiler. 4.7 Case Study: Comparing Risk Profiles. 4.8 Conclusion. 5. PRODUCT DESIGN. 5.1 Case Study 'Ladder Pop'. 5.2 Case Study 'DAX Sparbuch'. 5.3 Optimal Product Design. 5.4 Conclusion. 6. DYNAMIC ASSET ALLOCATION. 6.1 The Optimal Tactical Asset Allocation. 6.2 The Optimal Strategic Asset Allocation. 6.3 Conclusion. 7. LIFE CYCLE PLANNING. 7.1 Case Study: Widow Kassel. 7.2 Main Decisions over Time. 7.3 Consumption Smoothing. 7.4 The Life Cycle Hypothesis. 7.5 The Behavioural Life Cycle Hypothesis. 7.6 The Life Cycle Asset Allocation Problem. 7.7 The Life Cycle Asset Allocation of an Expected Utility Maximizer. 7.8 The Life Cycle Asset Allocation of a Behavioural Investor. 7.9 Life Cycle Funds. 7.10 Summary 207. 8. STRUCTURED WEALTH MANAGEMENT PROCESS. 8.1 The Benefits of a Structured Wealth Management Process. 8.2 Problems Implementing a Structured Wealth Management Process. 8.3 Impact of the New Process on Conflicts of Interests. 8.4 Learning by 'Cycling' Through the Process. 8.5 Case Study: Credit Suisse. 8.6 Mental Accounting in the Wealth Management Process. 8.7 Conclusions. 9. CONCLUSION AND OUTLOOK. 9.1 Recapitulation of the main achievements. 9.2 Outlook of further developments. References. List of Notation. List of Figures. List of Tables.