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Garleanu, Nicolae Bogdan; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2005

We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...

Persistent link: https://www.econbiz.de/10005067592

Late Informed Betting and the Favourite-Longshot Bias

Ottaviani, Marco; Sørensen, Peter Norman - C.E.P.R. Discussion Papers - 2003

According to the favorite-longshot bias observed in pari-mutuel betting, the final distribution of bets overestimates the winning chance of longshots. This Paper proposes an explanation of this bias based on late betting by small privately informed bettors. These bettors have an incentive to...

Persistent link: https://www.econbiz.de/10005504377

Excessive continuation and Dynamic Agency Costs of Debt

Décamps, Jean Paul; Faure-Grimaud, Antoine - C.E.P.R. Discussion Papers - 2000

This paper analyses the incentives of the equityholders of a leveraged company to shut it down in a continuous time, stochastic environment. Keeping the firm as an ongoing concern has an option value but equity and debt holders value it differently. Equity holders' decisions exhibit excessive...

Persistent link: https://www.econbiz.de/10005504424

New Techniques to Extract Market Expectations from Financial Instruments

Söderlind, Paul; Svensson, Lars E O - C.E.P.R. Discussion Papers - 1997

to extract not only the means, but also the whole (risk neutral) probability distribution from a set of option prices. …

Persistent link: https://www.econbiz.de/10005504605

Direct Estimation of the Risk Neutral Factor Dynamics of Affine Term Structure Models

Bams, Dennis; Schotman, Peter C - C.E.P.R. Discussion Papers - 1998

pools yield curve data for different moments in time. Since each cross-sectional yield curve only depends on the risk … neutral factor dynamics, the estimator does not involve any assumptions on the price of risk, or on actual interest rate …

Persistent link: https://www.econbiz.de/10005498193

Implied Volatility Functions: Empirical Tests

Dumas, Bernard J; Fleming, Jeff; Whaley, Robert E - C.E.P.R. Discussion Papers - 1996

Black and Scholes (1973) implied volatilities tend to be systematically related to the option’s exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behaviour to the fact that the Black/Scholes constant volatility assumption is...

Persistent link: https://www.econbiz.de/10005498195

Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees

Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn - C.E.P.R. Discussion Papers - 2012

large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial …

Persistent link: https://www.econbiz.de/10011083289

Carry

Koijen, Ralph; Moskowitz, Tobias J; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2013

generalized version of the uncovered interest rate parity and expectations hypothesis in favor of models with varying risk premia …

Persistent link: https://www.econbiz.de/10011083673

Volatility Risk Premia and Exchange Rate Predictability

Della Corte, Pasquale; Ramadorai, Tarun; Sarno, Lucio - C.E.P.R. Discussion Papers - 2013

We investigate the predictive information content in foreign exchange volatility risk premia for exchange rate returns …. The volatility risk premium is the difference between realized volatility and a model-free measure of expected volatility … than those from carry trade and momentum strategies. Canonical risk factors cannot price the returns from this strategy …

Persistent link: https://www.econbiz.de/10011084715

Mencía, Javier; Sentana, Enrique - C.E.P.R. Discussion Papers - 2015

We compare Semi-Nonparametric expansions of the Gamma distribution with alternative Laguerre expansions, showing that they substantially widen the range of feasible moments of positive random variables. Then, we combine those expansions with a component version of the Multiplicative Error Model...

Persistent link: https://www.econbiz.de/10011186623