We use a no-arbitrage term structure model of equity yields computed from the prices of dividend swaps to estimate the yields on hypothetical bonds with cash-flows indexed to the level of US GDP. This provides a novel approach for estimating the possible relative cost of conventional and...

Rational frictionless asset pricing models imply that inflation swap rates and break-even inflation rates with same maturity must be equal. The data, however, suggest a persistent positive difference between these two quantities, which the literature attributes to mispricing of Treasury...

This paper describes a new parametric volatility surface that is arbitrage free, extremely rich and flexible, and has closed-form expressions for both European option values and local volatilities. Our surface is based on the work of Carr and Pelts, for which we provide a simple derivation and a...

This empirical paper comprehensively sets out the impact of underspecification on a key foundational concept in empirical finance, the linear factor model. It places emphasis on the extensive consequences of factor omission for model estimation and interpretation. Factor omission in time-series...

The cost of selling a security short is an equilibrium outcome of the demand for short positions and the willingness of long-term institutional investors to lend their securities to short sellers. We introduce an imperfectly competitive securities lending market into a model of securities...

We propose a new methodology for forming arbitrage portfolios that utilizes the information contained in firm characteristics for both abnormal returns and factor loadings. The methodology gives maximal weight to risk-based interpretations of characteristics' predictive power before any...

Estimates of mispricing, such as deviations from no-arbitrage relations, strongly comove across five financial markets. One common component---the arbitrage gap---explains the majority of variability in mispricing estimates for futures, Treasury securities, foreign exchange, and options....

We study the dynamics of cash-and-carry arbitrage using the U.S. crude oil market. Sizable arbitrage-related inventory movements occur at the NYMEX futures contract delivery point but not at other storage locations where, instead, operational factors explain most inventory changes. We add to the...