In this paper we explore the dynamics of Implied Volatility Surfaces (IVS) both in a single-currency framework, and in the context of a global, integrated market. We construct a parametric function of “moneyness” and “time-to-maturity” factors that correspond to common shapes of IVS with...

The liquidity crunch and the ensuing financial crisis have unambiguously affected all national economies and global currency exchange rates. In this article we ask whether the cross-currency correlation structure has changed since 2007. Using an extensive set of volatility surfaces implied from...

Volatility implied from observed option contracts systematically varies with the contracts' strike price and time to expiration, giving rise to an instantaneously non-flat implied volatility surface (IVS) that exhibits substantial time variation. We identify a number of latent factors that drive...

Recent general equilibrium models prescribe predictable dynamics in the volatility surfaces that are implied by observed option prices. In this paper we investigate the predictability of surfaces, using extensive time series of implied volatilities from over-the-counter options on eight...

We claim that previously proposed parametric specifications that linearly approximate the term structure of the implied volatility surface (IVS) in option prices fail to capture important information regarding the expectations of market participants. This paper proposes a parametric...

This article explores the role of the realized return distribution in the formation of the observed implied volatility smile using the framework of an adaptive expectations model. According to this framework investors update their expectations of future events, through which options are priced,...

Using a framework motivated by the Adaptive Markets Hypothesis (AMH) I explore the extent to which the financial statement (FS) is relevant for Credit Default Swap (CDS) trading. I propose a Bayesian Model Averaging approach to examine properties of accounting metrics that enter the trading...

The purpose of this paper is to develop certain relatively recent mathematical discoveries known generally as stochastic calculus, or more specifically as Ito's Calculus and to also illustrate their application in the pricing of options. The mathematical methods of stochastic calculus are...

We present a method for extracting the market risk premium from stock and option data and examine its validity. We extend Duan and Zhang's (2014) model to estimate the projected risk aversion coefficient using more information for the discrepancy of the physical from the risk-neutral...

We propose a stochastic spanning to evaluate whether anomalies are genuine under factor-model framework. Our approach is nonparametric and does not rely on any assumption of return distribution and investor risk preferences. It depends on the whole distribution of returns, rather than only on...