We develop a new option pricing framework that tightly integrates with how institutional investors manage options … index time series and options data, we extract volatility risk and risk premium from the volatility surfaces, and find that …

We consider the hedging of options when the price of the underlying asset is always exposed to the possibility of jumps … and a continuum of shorter-term options written on the same asset. In this portfolio of shorter-term options, the … finite set of shorter-term options and use Monte Carlo simulation to determine the hedging error thereby introduced. We …