In this paper we develop a novel valuation model and methodology to value a pharmaceutical R&D project based on real options approach. The real options approach enables the possibility of optimally abandon the project before completion whenever the investment cost turns out to be larger than the...

The objective of this study was to analyze and model periodic behavior observed in India's Nifty VIX Index and to seek the origins of these previously unreported calendar variations. Implied volatility and its variations are important to understand as the pricing of many financial assets and...

This paper addresses several theoretical and practical issues in option pricing and implied volatility calibration in a fractional Black-Scholes market. In particular, we discuss how the fractional Black-Scholes model admits a non-constant implied volatility term structure when the Hurst...

This paper develops a lattice method for option evaluation in the presence of regime shifts in the correlation structure of assets, aiming at investigating whether the option prices reflect such shifts. Specifically we try to investigate whether option prices reflect switches in the correlation...

We consider the Schwartz 97 two and three factor models, which have been considered as benchmarks for pricing commodity derivatives in the last two decades. In order to take account of sudden regime shifts in commodity prices, we superimpose a regime shifting structure onto this framework. Using...

This paper develops a closed-form model for options on commodities under the assumptions of mean-reversion in the commodity prices and regime-switching in the commodity returns volatility. After a closed-form solution for the option value in constant regimes has been developed, the model is...

We investigate the effects of return jumps on option bid-ask spreads measured in implied volatility. To explain bid-ask spread quoting behavior, we construct a general model with market makers trading in an incomplete market in which a Bernoulli-type jump could occur. Following a numerical...

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...

Building Risk-Neutral Density (RND) from options data is one useful form of extracting market expectations about a financial variable. For a sample of IDI (Brazilian Interbank Deposit Rate Index) options from 1998 to 2009, this paper estimates the option-implied Risk-Neutral Densities for the...