Martina Nardon

finance seminar

Martina Nardon

Ca’Foscari University
European option pricing under cumulative prospect theory with alternative probability weighting functions
Co-écrit avec
Paolo Pianca
Lieu

Château Lafarge

Château Lafarge - Salle de séminaires
Château Lafarge
Route des Milles
13290 Les Milles
Date(s)
Mardi 13 décembre 2016| 14:30
Contact(s)

Eric Girardin : eric.girardin[at]univ-amu.fr
Christelle Lecourt : christelle.lecourt[at]univ-amu.fr

Résumé

In this contribution, we evaluate European financial options under continuous cumulative prospect theory. We focus on investors’ probability risk attitudes and consider alternative probability weighting functions. In particular, the constant relative sensitivity weighting function is the only one, amongst those proposed in the literature, which is able to model separately curvature and elevation. Curvature models optimism and pessimism when one moves from extreme probabilities, whereas elevation can be interpreted as a measure of relative optimism. We performed a variety of numerical experiments and studied the effects of both these features on options prices.

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