  It is essential to incorporate the impact of investor behavior when modeling
the dynamics of asset returns. In this paper, we reconcile behavioral finance
and rational finance by incorporating investor behavior within the framework of
dynamic asset pricing theory. To include the views of investors, we employ the
method of subordination which has been proposed in the literature by including
business (intrinsic, market) time. We define a mixed Levy subordinated model by
adding a single subordinated Levy process to the well-known log-normal model,
resulting in a new log-price process. We apply the proposed models to study the
behavioral finance notion of "greed and fear" disposition from the perspective
of rational dynamic asset pricing theory. The greedy or fearful disposition of
option traders is studied using the shape of the probability weighting
function. We then derive the implied probability weighting function for the
fear and greed deposition of option traders in comparison to spot traders. Our
result shows the diminishing sensitivity of option traders. Diminishing
sensitivity results in option traders overweighting the probability of big
losses in comparison to spot traders.
