We document that implied volatility (IV) curves extracted from short-term equity options frequently become concave prior to the earnings announcement day (EAD) reflecting a bimodal risk-neutral distribution for the underlying stock price. Firms with concave IV curves exhibit significantly higher...

We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the asset is driven by Brownian motion, an associated "master...

We introduce a novel semi-parametric estimator of the price of American options in a discrete time, Markovian framework. The estimator is based on a parametric specification of the stochasticdiscount factor and is non-parametric w.r.t. the historical dynamics of the state variables. The...

We survey several models of liquidity and liquidity related problems such as optimal execution of a large order, hedging and super-hedging options for a large trader, utility maximization in illiquid markets and price impact models with price manipulation strategies

The main result of the paper is a formula for zero time-to-maturity limit of implied volatilities of European options under a broad class of stochastic volatility models. Based on this formula, we propose a closed-form approximation of the implied volatility smile. Numerical examples suggest...

A new class of risk measures called cash sub-additive risk measures is introduced to assess the risk of future financial, nonfinancial and insurance positions. The debated cash additive axiom is relaxed into the cash sub-additive axiom to preserve the original difference between the numeraire of...

We provide a general valuation approach for capital budgeting decisions involving the modularization of a system. Within the framework developed by Baldwin and Clark (2000), we implement an approach using a numerical procedure based on the Least Squares Monte Carlo method proposed by Longstaff...