problem under a discrete time model, where the optimal hedging strategy is defined by the local risk minimization. We show …In this paper, we consider hedging and pricing of illiquid options on an untradable underlying asset, where an … alternative instrument is used as a hedging instrument. We assume that the trade price of the hedging instrument is subject to …

highly concentrated and volatile. The Volmageddon episode provides valuable risk management lessons because it illustrates …

-sample and 31.2% out-of- sample. The model more accurately portrays the tail behavior of VIX risk-neutral distribution for both …

volatility risk. While pointing out the joint pricing kernel is not identified nonparametrically, we propose model-free estimates …

risk. Finally, using a full-fledged parametric model, we recover the joint pricing kernel, which is not otherwise …

option mid-quotes about their generating process. Considering stock return and its volatility as the risk factors and without … formation. Second, constraining the nonparametric estimation procedure of the historical joint dynamics of the risk factors to … different estimates of historical conditional correlation of the risk factors, Sharpe ratio of an investment on the stock …

In this paper, we modify Duan’s (1995) local risk-neutral valuation relationship (mLRNVR) for the GARCH option … more persistent in the risk-neutral measure than in the physical one, so that one is able to capture the variance risk …

&A target prices that differ for the sell and buy side even if both sides are equally risk-averse and share identical …