precision parameter of the DP process is calibrated to the amount of trading activity in deep-out-of-the-money options. We use …

I develop a noisy rational expectations equilibrium model with a continuum of states and a full set of options that … have important implications for price discovery through options …

sensitivities to chosen risk factors. I test these portfolios empirically and find that options signifi cantly improve the risk … highly attractive skewness-kurtosis profi le. In the presence of transactions costs that depend on an option's moneyness and …

European style options for various maturities. We analyze the validity of the model given its ability to price one-day ahead … out-of-sample call options and also its ability to capture the empirical dynamic of the volatility skew. First, we get a … severe mispricing for deep out-of-the-money and short term call options. Second, this model reveals a good ability to capture …