Many models have been suggested to describe how investors manage risk and value risky cash flows. Among them, the most widely used is the Sharpe-Lintner-Black Capital Asset Pricing Model (CAPM). However many anomalies and evidence against this version have been presented. To assume that the CAPM...

The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator...

We investigate the problem of calibrating an exponential Lévy model based on market prices of vanilla options. We show that this inverse problem is in general severely ill-posed and we derive exact minimax rates of convergence. The estimation procedure we propose is based on the explicit...

The paper studies estimation of implied volatility and the impact of the choice of the corresponding risk-free rate proxy. We suggest to analyze the implied volatility and the risk-free rate proxy inferred in conjunction from the observed option prices. We formulate and solve an overdefined...

Equity index risk premia vary more than can be explained by market risks and pricing models. I show that index option intermediaries cause variation in risk premia to manage their option positions. When expected volatility is low, intermediaries hold risky short positions. Increasing risk and...

The historical returns on equity index options are well known to be strikingly negative. That is typically explained either by investors having convex marginal utility over stock returns (e.g. crash/variance aversion) or by intermediaries demanding a premium for hedging risk. This paper examines...

The aim of this paper is to provide a new straightforward \textit{measure-free} methodology based on a convex hulls to determine the no-arbitrage pricing bounds of an option (European or American). The pedagogical interest of our methodology is also briefly discussed. The central result, which...

By exploiting the flexibility of the Wishart process, we propose an application of this framework to the pricing of Chicago Board Options Exchange (CBOE) volatility index (VIX) options. Our methodology is analytically tractable and yet flexible enough to efficiently price CBOE VIX options. In...

This paper implements an algorithm that can be used to solve systems of Black-Scholes equations for implied volatility and implied risk-free rate of return. After using a seemingly unrelated regressions (SUR) model to obtain point estimates for implied volatility and implied risk-free rate, the...