We study the shape of the Bachelier-implied volatility of a spread option on two assets following correlated local volatility models. This includes the limiting case of spread options on two correlated Black-Scholes (BS) assets. We give an analytical result for the at-the-money (ATM) skew of the...

We seek to estimate a portfolio of option prices in an entirely data driven way, at any future time, for trading and risk management purposes in a model independent way. We do not know the model driving the dynamics of the actual stock prices, but only observe discretely their evolution in the...

This paper investigates risk-neutral price of European option under dividend barrier strategy when cumulative log-return during time interval [0,t] of the underlying stock in the absence of dividends follows a Brownian motion with drift. Such a dividend barrier strategy means that in the...

The small-maturity implied volatility of an asset pricing model is fully determined by the asymptotics of traded option prices, and thus model-free expressions are available. We show how by sharpening one such expression it is possible to derive a general formula for the leading order of the...

Widespread violations of stochastic dominance by one-month S&P 500 index call options over 1986-2006 imply that a trader can improve expected utility by engaging in a zero-net-cost trade net of transaction costs and bid-ask spread. Although pre-crash option prices conform to the...