This study investigates the long-memory property and the fractionally cointegration between absolute changes in observed stock prices and implied stock prices from option pricing model. We find a stylized fact that absolute price movements in stock and option markets are characterized by long...

This paper shows that the standard textbook formula for computing the present value of a future random cash flow – the discounted expected value – is formally incorrect and can generate significant errors when used to compute present values. The correct present value method is provided as...

This paper extends the existing literature on managing house price risk. While previous work finds that a hedger would have reduced a large amount of variance in housing returns in Las Vegas, Nevada using Chicago Mercantile Exchange (CME) futures contracts, we show that neither static nor...

This paper examines the impact of macroeconomic announcements on the high-frequency behavior of the observed implied volatility skew of S&P 500 index options and VIX. We document that macroeconomic announcements affect VIX significantly and slope at a lesser extent. We also find evidence that...

The Gain–Loss-Ratio, proposed by Bernardo and Ledoit (2000), can either be used as a performance measure on a market with known prices or to derive price intervals in incomplete markets. For both applications, there is a considerable theoretical drawback: it reaches infinity for nontrivial...

This paper studies the hedging performance of static replication approach proposed by Derman, Ergener, and Kani (DEK, 1995) for continuous barrier options under the constant elasticity of variance (CEV) model of Cox (1975) and Cox and Ross (1976), and then focuses on how to improve the DEK...

The term structure of commodity futures is important information for traders and investors. Traditional term-structure strategies are static; they tend to use the slope of term structure at a given moment. Instead, our trading strategy uses the change of term structure and generates statistically...

We test the accuracy and hedging performance of the deltas given by a range of nonparametric measure changes. The nonparametric models accurately estimate deltas across a number of asset price dynamics. The optimal nonparametric measure change displays superior estimation bias, which depends on...