Underlying each stock trades hundreds of options at different strike prices and maturities. The order flow from these option transactions reveals important information about the underlying stock price movement and its volatility variation. How to aggregate the trade information of different...

Underlying each stock trades hundreds of options at different strike prices and maturities. The order flows from these option transactions reveal important information about the underlying stock price. How to aggregate the trade information of different option contracts underlying the same stock...

Option prices vary with not only the underlying asset price, but also volatilities and higher moments. In this paper, we use a portfolio of options to seclude the value change of the portfolio from the impact of volatility and higher moments. We apply this portfolio approach to the price...

We propose to use the linearity-generating framework to accommodate the evidence of unspanned stochastic volatility: Variations in implied volatilities on interest-rate options such as caps and swaptions are independent of the variations on the interest rate term structure. Under this framework,...

Most existing hedging theories are derived under strong, idealistic assumptions on both the underlying security price dynamics and the trading environments. Practical concerns such as contract availability, transaction cost, and uncertainty regarding the security price dynamics impose severe...