Prospect theory (PT) has long been linked with the disposition effect. Despite significant progress towards rigorously modeling the trading behavior of PT investors, the literature has been largely silent on the effect of probability weighting. In this paper we incorporate probability weighting...

We present a continuous-time portfolio selection problem faced by an agent with S-shaped preference who maximizes the utilities derived from the portfolio's periodic performance over an infinite horizon. The periodic reward structure creates subtle incentive distortion. In some cases, local risk...

More than half of S&P 500 CEOs receive options annually, however extant valuation models have not accounted for portfolio considerations. We show the inability of executives to diversify means portfolio effects matter: exercise thresholds and shareholder costs are lower than for stand-alone...