We study the term structure of variance (total risk), systematic and idiosyncratic risk. Consistent with the expectations hypothesis, we find that, for the entire market, the slope of the term structure of variance is mainly informative about the path of future variance. Thus, there is little...

In this paper, author describes the project on binomial options pricing model (BOPM) and its application for security pricing. BOPM is explained for both one and multiple periods and price calculations are programmed with functions in Excel, the results are compared from Excel program to online...

This paper provides a difference-in-opinions equilibrium framework for pricing asset and option in a multi-period binomial economy with heterogeneous beliefs. Agents agree to disagree about their beliefs on the probability and asset return in each state of nature. By constructing a consensus...

This paper addresses the question of how to measure market participants’ intra-day risk-neutral expectations. In contrast to widely used quotes data, we present a novel step-by-step approach to estimate intra-day risk-neutral densities (RND) by only using option trades data. Based on a unique...

In this article, we study the algorithmic calculation of present values greeks for callable exotic instruments. The speed of greeks evaluations becomes important with recent initial margin rules, including the ISDA standard model SIMM, requiring sensitivity calculations for non-cleared deals...

This paper studies the impact of variance risk in the Treasury market on both term premia and the shape of the yield curve. Under minimal assumptions shared by standard structural and reduced-form asset pricing models, I show that an observable proxy of variance risk in the Treasury market can...

Computing Standardized Initial Margin Model Margin Valuation Adjustment (SIMM-MVA) requires the simulation of future sensitivities, but these are expensive to compute for callable products. This paper introduces a method which avoids nested calls to the pricing function, similar to the use of...

One-way coupling often occurs in multi-dimensional models in finance. In this paper, we present a dimension reduction technique for Monte Carlo (MC) methods, referred to as drMC, that exploits this structure for pricing plain-vanilla European options under a N-dimensional one-way coupled model,...

We estimate the value of the embedded option in the U.S. Treasury Inflation Protected Securities (TIPS). The embedded option value exhibits time variation that is correlated with periods of deflationary expectations. We construct embedded option explanatory variables that are statistically and...