The 13th Frontier Forum for Digital Technology and Finance

Abstract：

We propose a new weighting function, generalized Wang transform, derived from normality invariance. This function takes various shapes, including concave, convex, S-shaped and inverse S-shaped functions, depending on the range of parameters and distinguishes the curvature and elevation of probability weighting. With this function, we prove the CAPM and Security Market Line Theorem under probability weighting by assuming risk aversion and loss aversion, respectively. Moreover, we find the overpricing of skewness through numerical analysis and provide intuitive explanations from the perspective of perceived distributions.

Speaker Introduction：

Shunming Zhang, Professor, PhD supervisor, Director, Institute of Financial Engineering, Renmin University of China. Bachelor of Mathematics, Department of Mathematics, Central China Normal University; Master and Doctor of Mathematical Economics, Institute of Systems Science, Chinese Academy of Sciences. He was a lecturer and associate professor at the School of Economics and Management of Tsinghua University, a visiting professor and postdoctoral researcher at the Department of Economics of the University of Western Ontario (Canada), a researcher at the School of Economics and Finance of Victoria University of Wellington (New Zealand), and Wang Yanan Distinguished Professor of Economics at Xiamen University (doctoral supervisor). Recently, I focused on the latest progress of uncertainty, and studied ambiguity and asset pricing, including the endogenous factors of ambiguity with limited participation in financial markets, ambiguity and diversified investment, ambiguity and pricing power, and other academic hot spots in behavioral finance. He has published more than 100 academic papers in mathematical economics, financial economics, economic theory and economic policy. Publications in international journals include Journal of Mathematical Economics (1996), Mathematical Finance (2002), Journal of Mathematical Analysis and Applications (2006), Journal of Development Economics (2007),  Economic Theory (2009), European Journal of Operational Research (2010), Journal of Banking and Finance (2011),  Journal of Financial Markets (2017, 2023) et al.