This paper studies the "overpriced puts puzzle" — the finding that historical prices of the S&P 500 put options have been too high and incompatible with the canonical asset-pricing models. To investigate whether put returns could be rationalized by another, possibly non-standard equilibrium...

This paper develops a new approach for variance trading. We show that the discretely-sampled realized variance can be robustly replicated under very general conditions, including when the price can jump. The replication strategy specifies the exact timing for rebalancing in the underlying. The...

In Andersen and Bondarenko (2014), using tick data for S&P 500 futures, we establish that the VPIN metric of Easley, López de Prado, and O'Hara (ELO), by construction, will be correlated with trading volume and return volatility (innovations). Whether VPIN is more strongly correlated with...

The Volume-Synchronized Probability of Informed trading (VPIN) metric is introduced by Easley, López de Prado, and O'Hara (2011a) as a real-time indicator of order flow toxicity. They find the measure useful in monitoring order flow imbalances and conclude it may help signal impending market...

The notion of model-free implied volatility (MFIV), constituting the basis for the highly publicized VIX volatility index, can be hard to measure with accuracy due to the lack of precise prices for options with strikes in the tails of the return distribution. This is reflected in practice as the...

This article introduces the concept of a statistical arbitrage opportunity (SAO). In a finite-horizon economy, a SAO is a zero-cost trading strategy for which (i) the expected payoff is positive, and (ii) the conditional expected payoff in each final state of the economy is nonnegative. Unlike a...