We show that if a lead-lag relation exists between the option and spot markets, the implied volatility in option prices can be biased depending on the level of the true volatility; that is, the higher the true volatility, the more upward biased the implied volatility will be. We then test the...

This paper proposes a novel way of pricing S&P500 index options in the presence of jump risk. Our analysis is built upon an equilibrium option pricing rule for a representative agent economy. In particular, we use the weighted utility's certainty equivalent to specify agent's risk preference,...

We develop a novel approach for the direct extraction of aggregated investor attention and relative risk aversion (RRA) from European option prices. Applying it to China 50ETF options data, we document several noteworthy findings. First, we introduce the option-implied attention (OIA) index,...

The Black-Derman-Toy (BDT) model is a popular one-factor interest rate model that is widely used by practitioners. One of its advantages is that the model can be calibrated to both the current market term structure of interest rate and the current term structure of volatilities. The input term...