When investing in derivatives portfolios (such as options), the delta-gamma approximation (DGA) is often used as a risk management strategy to reduce the risk associated with the underlying asset price. However, this approximation is accepted only for small changes of the underlying asset price....

Inspired by the theory of social imitation (Weidlich 1970) and its adaptation to financial markets by the Coherent Market Hypothesis (Vaga 1990), we present a behavioral model of stock prices that supports the overreaction hypothesis. Using our dynamic stock price model, we develop a two factor...

We present a new term-structure model for commodity futures prices based on Trolle-Schwartz (2009), which we extend by incorporating seasonal stochastic volatility represented with of two different sinusoidal expressions. We obtain an analytical representation of the characteristic function of...

The pricing of vanilla options on underliers with cash dividends is a surprisingly contentious and active research subject, for both European or American exercise style. Neither on the listed options side (calls and puts) nor on the flow/structured side of longer-term vanillas or light exotics...

In this paper we present a critical point on connections between stock volatility, implied volatility, and local volatility. The essence of the Black Sholes pricing model is based on assumption that option piece is formed by no arbitrage portfolio. Such assumption effects the change of the real...

We propose a nonparametric Bayesian approach for the estimation of the pricing kernel. Historical stock returns and option market data are combined through the Dirichlet Process (DP) to construct an option-adjusted physical measure. The precision parameter of the DP process is calibrated to the...

Numerous studies find S-shaped pricing kernels, which is conflicting with standard theory. In contrast to that, based on a novel GARCH model with structural breaks, I show that the pricing kernel is consistently U-shaped. The results are robust to variations in the methodology and hold for...