The main criterion in investment decisions is to maximize the investors utility. Traditional capital asset pricing models cannot be used when asset returns do not follow a normal distribution. For this reason, we use capital asset pricing model with independent and identically asymmetric power distributed (CAPM-IIAPD) and capital asset pricing model with asymmetric independent and identically a...

This paper provides an economic explanation of the value premium, differences in price/dividend ratios of value and growth assets and variance-covariance structure of their realized returns within the long-run risks model of Bansal and Yaron (2004). Consistent with time-series properties of observed cash-flow data, value firms exhibit higher exposure to low-frequency fluctuations in aggregate c...

We show in any economy trading options, with investors having mean-variance preferences, that there are arbitrage opportunities resulting from negative prices for out of the money call options. The theoretical implication of this inconsistency is that mean-variance analysis is vacuous. The practical implications of this inconsistency are investigated by developing an option pricing model for a ...