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Construction and Interpretation of Model-Free Implied Volatility

Andersen, Torben - 2007

The notion of model-free implied volatility (MFIV), constituting the basis for the highly publicized VIX volatility … more compatible with the related concept of corridor implied volatility (CIV). We provide a comprehensive derivation of the … CIV measure and relate it to MFIV under general assumptions. In addition, we price the various volatility contracts, and …

Persistent link: https://www.econbiz.de/10012775913

A General Stochastic Volatility Model for the Pricing and Forecasting of Interest Rate Derivatives

Trolle, Anders B. - 2010

We develop a tractable and flexible stochastic volatility multi-factor model of the term structure of interest rates …

Persistent link: https://www.econbiz.de/10012761268

Mispricing of S&P 500 Index Options

Constantinides, George M. - 2010

Widespread violations of stochastic dominance by one-month Samp;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...

Persistent link: https://www.econbiz.de/10012758035

Option-Based Credit Spreads

Culp, Christopher L. - 2014

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

Persistent link: https://www.econbiz.de/10013039754

Jump and Volatility Risk and Risk Premia : A New Model and Lessons from S&P 500 Options

Santa-Clara, Pedro - 2005

We use a novel pricing model to filter times series of diffusive volatility and jump intensity from Samp;P 500 index … about twice the premium required to compensate the same investor for the realized volatility, 5.8 percent. Moreover, the ex …

Persistent link: https://www.econbiz.de/10012785090

Demand-Based Option Pricing

Garleanu, Nicolae - 2010

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/10012761687

Hedging Macroeconomic and Financial Uncertainty and Volatility

Dew-Becker, Ian; Giglio, Stefano; Kelly, Bryan T. - 2021

risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while … uncertainty. The results dictate the role of uncertainty and volatility in structural models and we show they are consistent with …

Persistent link: https://www.econbiz.de/10013224964

Regime-Switching Behavior of the Term Structure of Forward Markets

Branson, Elena Tchernykh - 2006

This paper presents techniques for modelling and estimating the behavior of financial market price or return differentials that follow non-linear regime-switching behaviour. The methodology to be used here is estimation of variants of threshold autoregression (TAR) models. In the basic model the...

Persistent link: https://www.econbiz.de/10012783699

An Efficient Generalized Discrete-Time Approach to Poisson-Gaussian Bond Option Pricing in the Heath-Jarrow-Morton Model

Das, Sanjiv Ranjan - 2021

) introducing a more generalized volatility specification than has been used so far, and (ii) inducting jumps, yet retaining lattice …

Persistent link: https://www.econbiz.de/10013249269

The Economics of Options-Implied Inflation Probability Density Functions

Kitsul, Yuriy - 2012

Recently a market in options based on CPI inflation (inflation caps and floors) has emerged in the US. This paper uses quotes on these derivatives to construct probability densities for inflation. We study how these pdfs respond to news announcements, and find that the implied odds of deflation...

Persistent link: https://www.econbiz.de/10013104396