This paper investigates informed trading on stock volatility in the option market. Using a unique data set from the Chicago Board Options Exchange, we construct non-market maker net demand for stock volatility from the trading volume of individual equity options. We find that this volatility...

In this paper, we develop and experiment an intensity based multi-factor model, which incorporates the joint modelling of default, prepayment and recovery risks. In this way, the model provides a link between the credit default swap (CDS) and the loan-only credit default swap (LCDS) markets. The...

In this paper, we introduce a new robust model for modelling and pricing LCDX tranches. We extend the generic one-factor model of [1], which was developed for modelling and pricing of a synthetic CDO of CDSs, to a model for tranched portfolio of loan-only CDSs (LCDSs). The essential difference...

Using transaction data for call options on the DAX, this study examines the empirical performance of (i) the standard Black/Scholes model (1973), (ii) the jump-diffusion model by Merton (1976), (iii) Heston's stochastic volatility model (1993), and (iv) Bates' stochastic volatility...

This paper analyzes the behavior of the German DAX index intraday returns. We devote particular attention to three related empirical issues. First we provide an up-to-date characterization of the DAX intraday volatility patterns. They are mostly W-shaped with peaks at the opening, at 2.30pm and...

We study the effect of options trading volume on the value of the underlying firm after controlling for other variables that may affect firm value. The volume of options trading might have an effect on firm value because it helps to complete the market (allocational efficiency) and because the...

Volatility has evolved as an attractive new asset class of its own. The most common instruments for trading volatility are variance swaps. Mean returns of DAX and ESX variance swaps over the time period from 1995 to 2004 are strongly negative, and only part of the negative premium can be...

The concept of the gamma of a financed return as the highest level of stress that a return distribution can withstand is introduced. The various stress levels passed describe convex cones of acceptable cash flows that start with positive expectation and finish with arbitrage at infinity. Stress...

This paper provides a model for valuing stocks that takes into account the stochastic processes for earnings and interest rates. Our analysis differs from past research of this type in being applicable to stocks that have a positive probability of zero or negative earnings. By avoiding the...

We give a simple pragmatic justification for risk neutral pricing that can be presented in a classroom without the explicit use of any advanced mathematics. We do this by exploiting a generalized binomial option pricing model developed by Arnold and Crack [2000]. This model allows for a...