This study examines a market-wide liquidity measure based on the systematic deviations from Put-Call parity in the U.S. equity option markets. We show that this implied liquidity measure provides forward-looking information about market returns and significantly explains the cross-sectional...

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...

When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...

The problem studied is the pricing of options on the CBOE Skew index. The option pricing theory developed seeks to hedge the risk using positions in the market for options on a related asset and the option is then priced at the cost of this hedge. The theory is applied to pricing VIX options...

In May of 1997, in the midst of the internet bubble, the average month end P/E ratio for the software industry was 44. However, the five year historical average was 31. In this study we examine the effect of this industry value fluctuation on the effects of option prices. We examine the...

Stocks with high idiosyncratic volatility perform poorly relative to low idiosyncratic volatility stocks. We offer a novel explanation of this anomaly based on real options, which is consistent with earlier findings on idiosyncratic volatility (the positive contemporaneous relation between...

This paper introduces a new jump diffusion process where the occurrence and the size of past jumps have an impact on both the instantaneous and the long term propensities of observing a jump instantaneously. Here, the intensity of jump arrival is a multifactor self-excited process whereas the...

We derive allocation rules under isoelastic utility for a mixed jump-diffusion process in a two-asset portfolio selection problem with finite horizon in the presence of proportional transaction costs. We adopt a discrete time formulation, let the number of periods go to infinity, and show that...

Options depending on the forward skew are very popular. One such option is the forward starting call option - the basic building block of a cliquet option. Widely applied models to account for the forward skew dynamics to price such options include the Heston model, the Heston-Hull-White model...

In this article, we propose an equilibrium pricing rule for the contingent claims by applying the economic premium principle initiated by Buhlmann (1980). The derivative markets in our model are over-the-counter (OTC) markets and have counterparty risks. We reconstruct the economic premium...