Widespread violations of stochastic dominance by 1-month Samp;P 500 index call options over 1986-2006 imply that a trader can improve expected utility by engaging in a zero-net-cost trade net of transaction costs and bid-ask spread. Although precrash option prices conform to the...

The central premise of the Black and Scholes [Black, F., Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy 81, 637-659] and Merton [Merton, R. (1973). Theory of rational option pricing. Bell Journal of Economics and Management Science 4, 141-184]...

American options on the Samp;P 500 index futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while...

By applying stochastic dominance arguments, upper bounds on the reservation write price of calls and puts and lower bounds on the reservation purchase price of these derivatives are derived in the presence of proportional transaction costs incurred in trading the underlying security. The primary...

American options on the Samp;P 500 index futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while...

We document widespread violations of stochastic dominance by one-month Samp;P 500 index call options market over 1986-2006. These violations imply that a trader can improve her expected utility by engaging in a zero-net-cost trade. We allow the market to be incomplete and also imperfect by...