Using the joint characteristic function of equity price and state variables, we can price contingent claims on both equity and VIX consistently. Based on linear approximation of jump size, we show that one factor models implies all VIX future contract of different maturities are perfectly...

This study attempts to examine the price discovery process and volatility spillovers in Gold futures and spot markets of National Commodity Derivatives Exchange (NCDEX) by employing Johansen’s Vector Error Correction Model (VECM) and the Bivariate ECM-EGARCH(1,1) model. The empirical result...

This paper aims to study the relative information shares of spot and futures market at the individual stock level to measure the price discovery in spot and futures market in the Indian capital markets. We find that the spot and futures prices are co-integrated and mutually adjusting. Building...

A State Price Density (SPD) is the density function of a risk neutral equivalent martingale measure for option pricing, and is indispensible for exotic option pricing and portfolio risk management. Many approaches have been proposed in the last two decades to calibrate a SPD using financial...

The credit valuation adjustment (CVA) of OTC derivatives is an important part of the Basel III credit risk capital requirements and current accounting rules. Its calculation is not an easy task - not only it is necessary to model the future value of the derivative, but also the probability of...

Commodity derivatives were introduced in India with a dual purpose of promoting price discovery and enhancing risk management in the commodities market. A transaction tax (of 0.01 per cent) on commodity futures trading was introduced in the Union Budget 2013-14. This study examines the rationale...

We develop a model of the illiquidity transmission from spot to futures markets that formalizes the derivative hedge theory proposed by Cho and Engle (1999). The model shows that spot market illiquidity does not translate one-to-one to the futures market, but rather interacts with price risk,...

The taxation of dividends in Germany underwent major changes. We analyze the implications of these changes for the valuation of DAX futures contracts and test the resulting hypotheses empirically. We find that dividend taxation cannot explain the level of deviations from the cost-of-carry...

Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...

We show that liquidity risk is priced in the cross section of returns on credit default swaps (CDSs). We measure CDS market illiquidity by aggregating deviations of credit index levels from their no-arbitrage values implied by the index constituents' CDS spreads, and we construct a tradable...