In this paper, we explain main concepts of Prospect Theory and Cumulative Prospect Theory within the rational dynamic … asset pricing framework. We derive option pricing formulas when asset returns are altered by a generalized Prospect Theory … Theory value functions and probability weighting functions consistent with rational dynamic pricing theory. After the …

portfolio theory, but the real issue today relates to the practical implementation of the theory introduced by Harry Markowitz … FINANCE -- CAUSALITY -- SUMMARY -- Chapter 4: Common Pitfalls in Financial Modeling -- THEORY AND ENGINEERING -- ENGINEERING …

Following the 2007-09 financial crisis, mainstream finance theory was criticized for failing to forecast the market … crash, which resulted in large losses for investors. Has our finance theory, which many consider an idealization that does … not take reality into account, failed investors? Do we need to reconsider the theory and how it is taught (and practiced …