We study the term structure of variance (total risk), systematic and idiosyncratic risk. Consistent with the expectations hypothesis, we find that, for the entire market, the slope of the term structure of variance is mainly informative about the path of future variance. Thus, there is little...

Cross-market deviations in equity put option prices and credit default swap spreads are temporal and revert to their usual level shortly after they occur, on average within about one week. The process of reversion involves predictable and economically significant changes also in the equity...

We develop a real options model in which a firm exposed to seasonal variations in its output price is able to produce output, store it, and sell it later, separating the production and selling decisions. The model suggests that the optimal policy for a firm with low inventory costs is to spread...

The aim of this paper is to determine whether forward-looking option-implied returns forecasts lead to better out-of-sample portfolio performance than conventional time series models. We consider a simple two-asset setting with a risk-free asset and the S&P 500 index the risky asset with monthly...

I investigate the relation between option prices and daily stock return serial correlation. I demonstrate that the variance ratio, calculated as the ratio of realized to implied stock return variance, has both a contemporaneous and predictive relation with stock return serial correlation. The...

This paper surveys the literature that deals with the informational content of market option prices for the purposes of quantitative asset management. We review studies that have investigated whether market option prices may help a portfolio manager in the stock selection process, portfolio...

We develop a measure of how information events impact investors' perceptions of risk that is broadly applicable and simple to implement. We derive this measure from an option-pricing model where investors anticipate an announcement that simultaneously conveys information on the announcer's...

We investigate the pricing of risk-neutral skewness in the stock options market by creating skewness assets comprised of two option positions (one long and one short) and a position in the underlying stock. The assets are created such that exposure to changes in the price of the underlying stock...

We investigate the pricing of risk-neutral skewness in the stock options market by creating skewness assets comprised of two option positions (one long and one short) and a position in the underlying stock. The assets are created such that exposure to changes in the underlying stock price...

We propose a nonparametric Bayesian approach for the estimation of the pricing kernel. Historical stock returns and option market data are combined through the Dirichlet Process (DP) to construct an option-adjusted physical measure. The precision parameter of the DP process is calibrated to the...