During the last decade, markets for covered warrants (bank-issued options) have flourished in Europe and Asia. In these markets, investors often face a choice between many instruments that differ only slightly from each other. Based on retail trades in call options on the German DAX index, this...

We develop statistical methods to detect informed trading in options markets. We apply these methods to 31 companies from various sectors over 14 years analyzing approximately 9.6 million option prices. We find that option informed trading tends to cluster prior to certain events, takes place...

This appendix extends the empirical results in Chesney, Crameri, and Mancini (2011). Informed trading activities on put and call options are analyzed for 19 companies in the banking and insurance sectors from January 1996 to September 2009. Our empirical findings suggest that certain events such...

This paper examines how the investors' expectations of the stock market evolve over the ten-year period between 1999 to 2008. In the past decade, the U.S. stock market experienced two major crises, with a relatively steady growth period in between. Using options implied risk neutral...

The financial crisis of 2008 had many putative causes. Psychology was an important driver for human decisions underlying these causes. However, quantitative financial models have no “knobs” to dial psychology parameters, and so arguably cannot possibly cope with financial crises. We have no...

Standard deviations of the volatility premium, of implied volatility innovations, and of the volatility term structure spread in equity options help explain the cross-section of one-month-ahead underlying stock returns. The explanatory power from standard deviations is robust to the levels of...

This paper documents that options held from one expiration date to the next achieve significantly lower returns when there are four versus five weeks between expiration dates. The average return differential ranges from 12 basis points per week for delta-hedged put portfolios to 89 basis points...

Behavioral theories contend that the human decision-making process tends to both incorporate anchor points and improperly weight low probability events. In this study, we find evidence that equity option market investors anchor to prices and incorporate a probability weighting function similar...

Options on crude oil futures are the most actively traded commodity options. We develop a class of computationally efficient discrete-time jump models that allow for closed-form option valuation, and we use crude oil futures and options data to investigate the economic importance of jumps and...

A risk-neutral probability distribution (RND) for future S&P 500 returns extracted from index options contains investors' true expectations and also their risk preferences. But the empirical pricing kernel that emerges in a representative agent framework, which suppresses investor differences,...