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...

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...