This paper studies the information content of the S&P 500 and VIX markets on the volatility of the S&P 500 returns. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. An extensive model specification analysis reveals that...

We study a new class of three-factor affine option pricing models with interdependent volatility dynamics and a stochastic skewness component unrelated to volatility shocks. These properties are useful in order (i) to model a term structure of implied volatility skews more consistent with the...

We present an effcient algorithm for interpolation and extrapolation of a discrete set of European option prices into a an arbitrage consistent full double continuum in expiry and strike of option prices. The method is based on an application of the fully implicit finite difference method and...

The ad hoc Black-Scholes (AHBS) model is one of the most widely used option valuation models among practitioners models. The main contribution of this study is methodological. We have two main results: (1) we make the empirical observation that typically the call and put sneers are discontinuous...

Collateral discounting recognises the value of funding for derivatives, which has gained prominence in recent years as basis spreads have widened in response to the financial crises. This article considers the impact of collateral volatility on discount factors and Libor and FX forwards, and...

I propose an affine discrete-time model, called Vector Autoregressive Gamma with volatility Bursts (VARG-B) in which volatility experiences, in addition to frequent and small changes, periods of sudden and extreme movements generated by a latent factor which evolves according to the...

This paper studies a large number of Bitcoin options traded on the options exchange Deribit. We use the trades to calculate implied volatility and analyze if volatility forecasts can be improved using such information. Implied volatility is less accurate than ARMA or HAR model forecasts in...

This paper examines whether the inclusion of oil price shocks of different origin as exogenous variables in a wide set of GARCH-X models improves the accuracy of their volatility forecasts for spot and 1-year time-charter tanker freight rates. Kilian's (2009) oil price shocks of different origin...

Leveraged exchange-traded funds (LETF) are newly introduced ETFs that have become increasingly popular. It closely tracks the value of an underlying index while allowing for additional leverage. In this paper, we consider the valuation of options written on leveraged exchange-traded funds under...