We assess the predictive accuracy of a large number of multivariate volatility models in terms of pricing options on the Dow Jones Industrial Average. We measure the value of model sophistication in terms of dollar losses by considering a set 248 multivariate models that differ in their...

An enhanced option pricing framework that makes use of both continuous and discontinuous time paths based on a geometric Brownian motion and Poisson-driven jump processes respectively is performed in order to better fit with real-observed stock price paths while maintaining the analytical...

Many professional sports seasons end with one or more five- or seven-game series to determine an overall champion. Binomial trees commonly used to value complex derivatives can organize the many outcomes of a sport series. Applying trees to baseball provides insights about the trees and about...

I develop a new spectrum of moment bounds on the pricing kernel. They stem from the solution of an optimization problem that is complementary to Hansen and Jagannathan's (1991) approach. Economically, they measure the discrepancy between what an optimizing agent could achieve if all assets (that...

This paper presents new look on option pricing and reconsiders derivation of the Black-Scholes-Merton equation. We argue options on stock price of economic agents that follow random Brownian walk on economic space. Risk ratings of economic agent play role of its coordinates on economic space....

We discuss the finding that cross-sectional characteristic based models have yielded portfolios with higher excess monthly returns but lower risk than their arbitrage pricing theory counterparts in an analysis of equity returns of stocks listed on the JSE. Under the assumption of general...

This paper deals with issues related to the choice of the interest rate model to price interest rate derivatives. After the development of the market models, choosing the interest rate model has become almost a trivial task. However, their use is not always possible, so that the problem of...

We present a method for extracting the market risk premium from stock and option data and examine its validity. We extend Duan and Zhang's (2014) model to estimate the projected risk aversion coefficient using more information for the discrepancy of the physical from the risk-neutral...

There is strong empirical evidence that long-term interest rates contain a time-varying risk premium. Options may contain valuable information about this risk premium because their prices are sensitive to the underlying interest rates. We use the joint time-series of swap rates and interest rate...

A new acceptable price approach to stochastic endpoint determination at given horizon accounting for the marginal investor beliefs and behaviour was proposed. Two-sided filtration with FBSDE defined stochastic dynamics was formulated for acceptable asset price under the risk-neutral probability...