We define a premium principle under the continuous cumulative prospect theory which extends the equivalent utility principle. In prospect theory risk attitude and loss aversion are shaped via a value function, whereas a transformation of objective probabilities, which is commonly referred as...

The covered call writing, which entails selling a call option on one's underlying stock holdings, is perceived by investors as a strategy with limited risk. It is a very popular strategy used by individual, professional and institutional investors; moreover, the CBOE developed the Buy Write...

Cumulative prospect theory (CPT) has been proposed as an alternative to expected utility theory to explain irregular behavior by economic agents. CPT comprises two key transformations: one of outcome values and the other of objective probabilities. Risk attitudes are derived from the shapes of...

We evaluate European financial options under continuous cumulative prospect theory. Within this framework, it is possible to model investors' attitude toward risk, which may be one of the possible causes of mispricing. We focus on probability risk attitudes and consider alternative probability...