Purpose - Credit derivatives continue to grow in popularity as well as complexity. While single-name credit default swaps are still the most popular instruments, second-generation products have become more commonplace. Second generation products are those whose payoffs are contingent on the...

Purpose – Credit derivatives continue to grow in popularity as well as complexity. While single‐name credit default swaps are still the most popular instruments, second‐generation products have become more commonplace. Second generation products are those whose payoffs are contingent on...

This paper develops a model of asymmetric information in which an investor has information regarding the future volatility of the price process of an asset and trades an option on the asset. The model relates the level and curvature of the smile in implied volatilities as well as mispricing by...