In the Samp;P500 futures options, we identify 3 factors, corresponding to movements in the underlying, parallel movements, and tilting of the cross section of implied volatilities (the quot;smirk factor''). We relate these factors non-linearly to movements in the option prices. They are...

We construct portfolios of Samp;P500 futures and their associated options, which are Delta (price) and Vega (volatility) neutral. These systematically earn negative abnormal returns, and suggest that out of the money puts are too expensive, relative to out of the money calls. We give evidence...

Since its introduction in 1973, the Black-Scholes model has found increasingly more resistance in application. In order to use Black-Scholes to price any option, one needs to know the implied volatility surface. The existence of such surface is an evidence of misspecification of the model. In...

We construct portfolios of Samp;P500 futures and their associated options, which are long out of (in) the money puts and short out of (in) the money calls, and which are delta (price) and vega (volatility) neutral, with respect to a GARCH type model for the underlying price. These systematically...

There exist a number of approximation methods for the price of average rate options, when the underlying asset is a currency or equity. Realistic pricing models for average interest rate caps based on interbank offered rates have not yet been published. In this paper we propose to adapt the...

This article develops a new trinomial tree model for barrier options. It is well-known that for barrier options, the positions of nodes in the tree with respect to the barrier value are critical. We use a time-dependent shift to position the tree optimally with respect to the barrier. The model...

There exist a number of approximation methods for the price of average rate options, when the underlying asset is a currency or equity. Realistic pricing models for average interest rate caps based on interbank offered rates have not yet been published. In this paper, we propose to adapt the...