We introduce the realized co-range, a novel estimator of the daily covariance between asset returns based on intraday high-low price ranges. In an ideal world, the co-range is five times more efficient than the realized covariance, which uses cross-products of intraday returns, when sampling at...

We propose a novel method to estimate risk-neutral quantiles that uses sorting to minimize an objective function given by a convex combination of call and put option prices over the range of available strike prices. We demonstrate that this new method significantly improves the accuracy of...

We show that option prices predict future stock returns only when stock returns are ex-ante predictable using public signals from the stock market itself. Directional option trading cannot explain these results, suggesting that they are not driven by informed trading or superior ability of...

We document that a theoretically founded, real-time, and easy-to-implement option-based measure, termed synthetic-stock difference (SSD), accurately estimates the part of stock's expected return arising from stock's transaction costs. We calculate SSD for U.S. optionable stocks. SSD can be more...

Low probability events are overweighted in the pricing of out-of-the-money index puts and single stock calls. This behavioral bias is strongly time-varying, and is linked to equity market sentiment and higher moments of the risk-neutral density. We find that our implied volatility (IV) sentiment...

Low probability events are overweighted in the pricing of out-of-the-money index puts and single stock calls. We find that this behavioral bias is strongly time-varying, linked to equity market sentiment, and higher moments of the risk-neutral density. An implied volatility (IV) sentiment...

We study the relation between option-implied skewness (IS) and the cross-section of option returns under daily hedging to better understand the pricing of skewness in isolation from lower moments. Creating portfolios of delta-hedged (D-hedged) and delta-vega-hedged (DV-hedged) options with daily...