The stylized fact that volatility is not priced in individual equity options does not withstand scrutiny. We show, first, that the average return of heavily traded deep out-of-the-money call options on stocks is -116 basis points per day. Second, Fama- MacBeth estimates of the volatility risk...

We show that microstructure biases in the estimation of expected option returns and risk premia are large, in some cases over 50 basis points per day. We propose a new method that corrects for these biases. We then apply our method to real data and produce three main findings. First, the...

Frequently, economic theory places shape restrictions on functional relationships between economic variables. This paper develops a method to constrain the values of the first and second derivatives of nonparametric locally polynomial estimators. We apply this technique to estimate the state...

Frequently, economic theory places shape restrictions on functional relationships between economic variables. This paper develops a method to constrain the values of the first and second derivatives of nonparametric locally polynomial estimators. We apply this technique to estimate the state...