We compare local and global polynomial solution methods for DSGE models with Epstein-Zin-Weil utility. We show that model implications for macroeconomic quantities are relatively invariant to choice of solution method but that a global method can yield substantial improvements for asset prices...

In this paper we primarily obtain the explicit formulas for the distribution function of the variance gamma process. The formulas are based on values of hypergeometric functions. This result is applied to European option pricing. Basing on the established formulas, we get the prices of binary...

We compare local and global polynomial solution methods for DSGE models with Epstein-Zin-Weil utility. We show that model implications for macroeconomic quantities are relatively invariant to choice of solution method but that a global method can yield substantial improvements for asset prices...

We utilize Bayesian model averaging to estimate a stochastic discount factor (SDF) for single-stock options. A Bayesian model averaging SDF outperforms reduced-form benchmark models in-sample and out-of-sample in pricing option return anomalies and portfolios. We document that the SDF is dense...

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...

In this paper we introduce a calibration procedure for validating of agent based models. Starting from the well-known financial model of Brock and Hommes 1998, we show how an appropriate calibration enables the model to describe price time series. We formulate the calibration problem as a...

How does private information get incorporated into option prices? To study this question, I develop a non-linear, noisy rational expectations equilibrium model with asymmetric information and a full menu of call and put options available for trading. The model allows for an arbitrary...

In turbulent and volatile markets options can be a preferred asset class for protection against adverse market movements. When volatility increases and markets become sparsely traded, it is not always effective to hedge adverse market movements using any option. Options, where the underlying is...

A new acceptable price approach to stochastic endpoint determination at given horizon accounting for the marginal investor beliefs and behaviour was proposed. Two-sided filtration with FBSDE defined stochastic dynamics was formulated for acceptable asset price under the risk-neutral probability...

We develop a theoretical trading conditioning model subject to price volatility and return information in terms of market psychological behavior, based on analytical transaction volume-price probability wave distributions in which we use transaction volume probability to describe price...