U.S. exchange-traded stock options are exercisable before expiration. While put options should frequently be exercised early to earn interest, they are not. In this paper, we explain an early exercise decision rule and then examine actual exercise behavior during the period January 1996 through...

Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...

This paper studies the predictability of S&P500 returns using short term risk premia as a conditioning variable. We construct dividend prices using futures data and identify short term risk premia by projecting excess returns of dividend claims on their lagged prices. Regression results for...

We model the S&P500 index options dynamics using the CGMY distribution, with independent "up" and "down" return jumps, and diffusive jump intensities. Allowing the up and down parts to be separately parameterised accounts for the dynamic smirk effect, without correlation between returns and...

Term premiums, defined as the excess return of long-dated contracts over short-dated contracts, in commodity futures are strongly predictable, both in the time series and in the cross section, by roll yield spreads. Strategies that exploit this predictability show sizable Sharpe ratios and are...

We derive expected bond return equations for various structural credit valuation models with alternative stochastic processes and boundary conditions for default given in Merton [1974], Merton [1976], Black and Cox [1976], Heston [1993], Longstaff and Schwartz [1995], and Collin-Dufresne and...

Market index and individual stock returns exhibit jumps in addition to normal shocks. Equities have exposure to the market and sensitivity to the market is important for explaining equity returns and option prices. I develop a new factor model that explores (i) if a separate beta for market...

When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...

We document that properly scaled deviations from put-call parity estimate the contribution of market frictions to expected returns (CFER) accurately, by means of a non-parametric theoretically founded identification strategy. The required conditions are that our estimator predicts the underlying...