This paper investigates whether the overpricing of out-of-the money single stock calls can be explained by Tversky and Kahneman's (1992) cumulative prospect theory (CPT). We argue that these options are overpriced because investors' overweight small probability events and overpay for such...

This paper investigates whether the overpricing of out-of-the money single stock calls can be explained by Tversky and Kahneman's (1992) cumulative prospect theory (CPT). We argue that these options are overpriced because investors overweight small probability events and overpay for such...

This paper investigates whether the overpricing of out-of-the money single stock calls can be explained by Tversky and Kahneman's (1992) cumulative prospect theory (CPT). We hypothesize that these options are expensive because investors overweight small probability events and overpay for...

We use extreme value theory to analyse the tails of a momentum strategy's return distribution. The asymmetry between the fat left tail and thin right tail strongly reduces a momentum strategy's prospective utility levels