Volatility implied from observed option contracts systematically varies with the contracts' strike price and time to expiration, giving rise to an instantaneously non-flat implied volatility surface (IVS) that exhibits substantial time variation. We identify a number of latent factors that drive...

This article explores the role of the realized return distribution in the formation of the observed implied volatility smile using the framework of an adaptive expectations model. According to this framework investors update their expectations of future events, through which options are priced,...

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...

This book provides a rigorous introduction to the theory, computation, and applications of variational inequalities (VIs), with a focus on applications in management science and finance. It aims to bridge the gap between the abstract mathematical treatments of the subject and simplistic,...