This paper studies the effects of default risk on equity option returns. We show that there is a cross-sectional and a time-series relation between default risk and option returns. In the cross-section, expected delta-hedged equity option returns have a negative relation with default risk...

In this article we address risk characteristics and rating of Collateralized Commodity Obligations (CCO), which are recently devised structured products similar to the Collateralized Debt Obligation (CDO). Commodities as an asset class have been in the spotlight of investors' attention for the...

Equity basket correlation is an important risk factor. It characterizes the strength of linear dependence between assets and thus measures the degree of portfolio diversification. It can be estimated both under the physical measure from return series, and under the risk neutral measure from...

This paper suggests a method of estimation of the implied volatility smile uncertainty of the observed options prices due to future risk-free rate uncertainty. The purpose is to quantify the range of uncertainty under different scenarios.We consider the setting where both the implied volatility...

In this paper, we propose a general data-driven framework that unifies the valuation and risk measurement of financial derivatives, which is especially useful in markets with thinly-traded derivatives. We first extract the empirical characteristic function from market-observable time series for...

Equity basket correlation is an important risk factor. It characterizes the strength of linear dependence between assets and thus measures the degree of portfolio diversification. It can be estimated both under the physical measure from return series, and under the risk neutral measure from...

Using prices of both S&P 500 options and recently introduced VIX options, we study asset pricing implications of volatility risk. While pointing out the joint pricing kernel is not identified nonparametrically, we propose model-free estimates of marginal pricing kernels of the market return and...

This paper provides a number of relevant guidelines to build a consistent Volatility Smile accounting for the FX market conventions. This consistency is understood as fitting a model which is able to price vanilla options across all possible strikes given the knowledge of a few market...

In this paper, we explore the relation between information uncertainty and S&P 500 index option returns. Since underlying state variable affecting economy is unobservable, investors have to obtain their own estimations based on available information. During such procedure, it is inevitable that...

The paper examines the performance of various hedging strategies using Options in the Indian options market. The entire spectrum of option hedging strategies are divided into two categories: 1) Strategies with limited losses and unlimited gains; 2) Strategies with limited losses and limited...