In this paper, we present a novel method to extract the risk-neutral probability of default of a firm from American put option prices. Building on the idea of a default corridor proposed in Carr and Wu (2011), we derive a parsimonious closed-form formula for American put option prices from which...

The cross-section of stock returns has substantial exposure to risk captured by higher moments in market returns. We estimate these moments from daily S&P 500 index option data. The resulting time series of factors are thus genuinely conditional and forward-looking. Stocks with high...

Figlewski [2002] has pointed out that there is nothing special about the Black–Scholes equation if the model is used for interpolation. Figlewski introduced a single-parameter alternative function. This function was extended by Henderson, Hobson, and Kluge [2007] to incorporate maturity....