The exercise of a warrant leads to the well-known dilution phenomenon, whose effects have been extensively studied over the last four decades. In contrast, the existing literature has paid inadequate attention to the volatility spillover between stockholders and warrant holders. This...

This paper investigates informed trading on stock volatility in the option market. Using a unique data set from the Chicago Board Options Exchange, we construct non-market maker net demand for stock volatility from the trading volume of individual equity options. We find that this volatility...

This paper examines whether investor sentiment about the stock market affects prices of the Samp;P 500 options. I find that the index option volatility smile is steeper (flatter) and the risk-neutralskewness of monthly index return is more (less) negative when market sentiment becomes more...

Put-call parity is used to study the early exercise premium for currency options traded on the Philadelphia Stock Exchange. Using 564 pairs of call and put options evidence is provided that the early exercise premia is on average 5.71% for put options and 6.88% for call options. The premiums for...

The U.S. agency mortgage backed securities (MBS) market is deep and highly liquid, yet modeling MBS is extremely challenging. This paper applies market participants' desired requirements for a good pricing model to MBS pricing models provided by six of the top MBS dealers. We find that five out...

This paper develops a method for estimating implied PDFs for futures prices from American options. The restricting assumption of log-normally distributed returns is relaxed with the use of the more flexible distributional form of an Edgeworth Series Expansion (ESE) of a log-normal distribution....

In this study, Huang and Stoll's (1997) three way decomposition model for posted spreads is estimated using a data set with 10 stocks traded at Stockholmsborsen (SB), randomly selected from in the OMX stock index. The Huang and Stoll (1997) model encompasses statistical and indicator models by...

We compare the lead lag relationships with three time-deformations (clock time, transaction time and volume time) and four lengths of intervals from five to thirty minutes. According to the options we study, we use the Cox, Ross and Rubinstein (1979) pricing model to take into account the...

This is an introduction to a five-volume collection of papers on financial econometrics to be published by Edward Elgar Publishers in 2007. Financial econometrics is one of the fastest growing branches of economics today, both in academia and in industry. The increasing sophistication of...

In line with the transactions cost theory, this paper shows that the futures market with its higher liquidity and lower transactions costs, leads the options market in the price discovery process. Liquidity and transaction costs are also shown to play a key role in market sensitivity to...