This article provides several new insights into the economic sources of skewness. First, we document the differential pricing of individual equity options versus the market index and relate it to variations in return skewness. Second, we show how risk aversion introduces skewness in the...

This article empirically analyzes some properties shared by all one-dimensional diffusion option models. Using S&P 500 options, we find that sampled intraday (or interday) call (put) prices often go down (up) even as the underlying price goes up, and call and put prices often increase, or...

We investigate whether the volatility risk premium is negative by examining the statistical properties of delta-hedged option portfolios (buy the option and hedge with stock). Within a stochastic volatility framework, we demonstrate a correspondence between the sign and magnitude of the...

This paper characterizes performance measures satisfying a set of proposed axioms. We develop four new measures consistent with the axioms and show that they improve on the economic properties of the Sharpe Ratio and the Gain-Loss Ratio. In our treatment, the performance measures, or the indexes...

Marketing costs are introduced into the security design environment outlined in Allen and Gale (1988). It is shown that splitting the firm's cash flow between products enhances their investor appeal and reduces marketing costs. We also explain how the extremal product design in Allen and Gale is...