We provide the first comprehensive analysis of option information for pricing the cross-section of stock returns by jointly examining extensive sets of firm and option characteristics. Using portfolio sorts and high-dimensional methods, we show that certain option measures have significant...

We study T. Cover's rebalancing option (Ordentlich and Cover 1998) under discrete hindsight optimization in continuous time. The payoff in question is equal to the final wealth that would have accrued to a $1 deposit into the best of some finite set of (perhaps levered) rebalancing rules...

We study a notion of good-deal hedging, that corresponds to good-deal valuation and is described by a uniform supermartingale property for the tracking errors of hedging strategies. For generalized good-deal constraints, defined in terms of correspondences for the Girsanov kernels of pricing...

We provide solution formulas for (linear and non-linear) jump-diffusion backward stochastic differential equations (BSDEs) under diverse enlarged filtration approaches. We also derive a comparison theorem for BSDEs in an enlarged filtration framework and present several applications of our...

This paper studies the relation between the uncertainty of volatility, measured as the volatility of volatility, and future delta-hedged equity option returns. We find that delta-hedged option returns consistently decrease in uncertainty of volatility. Our results hold for different measures of...

Conventional financial theory considers ex-ante that risk, generally measured by the volatility, has to be appropriately rewarded by expected returns. In modern financial markets, there are countless quantitative and systematic strategies which may test and eventually lead to excess returns when...

When analyzing options returns, most papers tend to focus on the expected and realized return from strategies where the investors are long on those financial instruments. We conduct a test searching for excess returns on passive options investment strategies resorting to a four factor model,...

The return dynamics of Argentina's main stock index, the SP Mer.Val., show a high level of volatility, signaling a higher degree of downside risk. To hedge against that specific risk, investors could buy put options. However, the Argentinean capital markets lacks variety of hedging contracts....

Advances in variance analysis permit the splitting of the total quadratic variation of a jump-diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of...

This is a survey of the basic theoretical foundations of intertemporal asset pricing theory. The broader theory is first reviewed in a simple discrete-time setting, emphasizing the key role of state prices. The existence of state prices is equivalent to the absence of arbitrage. State prices,...