This paper investigates empirically whether uncertainty about volatility of the market portfolio can explain the performance of hedge funds both in the cross-section and over time. We measure uncertainty about volatility of the market portfolio via volatility of aggregate volatility (VOV) and...

Options paying the product of put and/or call option payouts at different strikes on two underlying assets are observed to synthesize joint densities and replicate differentiable functions of two underlying asset prices. The pricing of such options is undertaken from three perspectives. The...

A Markov chain with an expanding non-uniform grid matching risk neutral marginal distributions is constructed. Conditional distributions of the chain are in the variance gamma class with prespecified skewness and excess kurtosis. Time change and space scale volatilities are calibrated from...

Comonotone additivity for two price economy bid and ask prices motivates combining bid prices for call options with the ask prices for puts and the converse to construct two densities (termed lower and upper) reflected by these prices. The two densities scaled to a unit mean are here linked by...

The spirit of now in nowcasting suggests expanding the current to include the near future. Decision theory is then developed by incorporating the consequences of actions into the present. With the future falling into the present discounting it is no longer permitted. Value functions are then...

This study formalizes the departure between risk-neutral and physical index return volatilities, termed volatility spreads. Theoretically, the departure between risk neutral and physical index volatility is connected to the higher-order physical return moments and the parameters of the pricing...

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 studies the valuation of options written on the average level of a Markov process. The general properties of such options are examined. We propose a closed-form characterization in which the option payoff is contingent on cumulative catastrophe losses. In our framework, the loss...

How do risk-neutral return skews evolve over time and in the cross-section of individual stocks? We document the differential pricing of individual equity options versus the market index, and relate it to variations in the skew. The change-of-measure induced by marginal-utility tilting of the...

This paper studies the structure of stock market crashes, rallies, their jump arrival rates, and extremes. Large market moves are characterized in a pure-jump modeling framework. Based on both raw and devolatized returns, it is shown empirically that crashes are more severe in intensity than...