This article studies how the loss averse behaviour affects the term structure of real interest rates. Since the pro-cyclical conditional expected marginal rate of substitution, implied from the US consumption data, is consistent with the proposition of loss aversion, we incorporate the loss...

This study extends the GARCH pricing tree in Ritchken and Trevor (J Financ 54:366–402, <CitationRef CitationID="CR33">1999</CitationRef>) by incorporating an additional jump process to develop a lattice model to value options. The GARCH-jump model can capture the behavior of asset prices more appropriately given its consistency with...</citationref>

In this paper, we develop a consumption-based asset pricing model motivated by prospect theory, where habit formation determines the endogenous reference point. This exploits the similarity between habit formation and prospect theory. Both emphasize that the investor does not care about the...

In contrast to the constant exercise boundary assumed by Broadie and Detemple (1996) [Broadie, M., Detemple, J., 1996. American option valuation: New bounds, approximations, and comparison of existing methods. Review of Financial Studies 9, 1211-1250], we use an exponential function to...