Recently a market in options based on CPI inflation (inflation caps and floors) has emerged in the US. This paper uses quotes on these derivatives to construct probability densities for inflation. We study how these pdfs respond to news announcements, and find that the implied odds of deflation...

Upstream producers that possess market power, sell forwards with a lengthy duration to regional electricity companies (REC). As part of the liberalization of the electricity market, RECs have been privatized and exposed to a possible bankruptcy threat if spot prices have fallen below their...

This paper aims to unify exotic option closed formulas by generalizing a large class of existing formulas and by setting a framework that allows for further generalizations. The formula presented covers options from the plain vanilla to most, if not all, mountain range exotic options and is...

In this paper we addressed the problem of determining the optimal replicating strategy for a European call option under differential transactions costs. We derived an upper boundary for the cost factor in a market where all Investors face the same factor. This upper boundary ensures the...

In this paper we compare market prices of credit default swaps with model prices. We showthat a simple reduced form model with a constant recovery rate outperforms the market practice ofdirectly comparing bonds' credit spreads to default swap premiums. We find that the model workswell for...

We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term...

In this paper, I study trading activities prior to M&A announcements pertaining to the rivals of the merging firms. I find that not only acquirers and targets experience increases in abnormal trading activities in stock and option markets, but also their rivals. The rise in option trading is...