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SUMMARY:Pi-CAPM: The Classical CAPM with Probability Weighting and Skewed 
 Assets - Sebastian Ebert (Frankfurt School of Finance &amp\; Management)
DTSTART:20211111T130000Z
DTEND:20211111T140000Z
UID:TALK161908@talks.cam.ac.uk
CONTACT:CERF/CF Admin
DESCRIPTION:We study asset prices in a generalized mean-variance framework
  that allows for probability weighting (the idea that investors overweight
  rare\, high impact events). The resulting model – the Pi-CAPM – allow
 s for a unique and homogeneous pricing equilibrium with skewed and correla
 ted assets and a tractable analysis thereof. We find that even symmetric p
 robability weighting has asymmetric pricing implications. For example\, th
 e price impact of volatility is skewness-dependent\, negative for left-ske
 wed assets but potentially positive for right-skewed assets. We further fi
 nd that probability weighting translates into an exaggerated dependence be
 tween the assets. Finally\, we make an empirical contribution and show tha
 t the option-implied premiums on variance and skewness depend on the under
 lying asset's skewness\, in the very way that is predicted by the Pi-CAPM.
LOCATION:Online
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