After a market downturn, especially in an uncertain economic environment such as the current state, there can be a relatively long period with a sideways market, where indexes, stocks, etc., move in channels with support and resistance levels. We discuss option pricing in such scenarios, in both...

Using a representative sample of 13F reports providing novel information on option characteristics and prices, we document that hedge funds prefer to hold liquid high–embedded leverage options without lottery-like skewness. Various portfolios mimicking hedge funds' option holdings earn...

This paper presents a new transform-based approach for path-independent lattice construction for pricing American options under low-dimensional stochastic volatility models. We derive multidimensional transforms which allow us to construct efficient path-independent lattices for virtually all...

We consider the frequency and correlation of extreme return observations or “jumps” across equities, Treasury bonds, corporate bonds, currencies, commodities, and real estate. Understanding more about jumps is important to investors as diversification across asset classes is diminished if...

This paper solves the dynamic investment problem of a risk averse agent compensated with a performance related bonus plus a salary guaranteed up to a certain level of underperformance. The main contribution is to explicitly take into account the financial fragility of the principal [employer],...

The optimal portfolio of a utility-maximizing investor trading in the S&P 500 index and cash, subject to proportional transaction costs, becomes stochastically dominated when overlaid with a zero-net-cost portfolio of S&P 500 options bought at their ask and written at their bid price in most...

This brief paper discusses the option-like exposures of a number of hedge fund strategies based on a review of the literature on the topic. Specifically, recent academic articles have argued that implicit options arise in hedge fund products due to the following factors: (1) the tailoring of...

The adjustment speed of delta hedged options exposure depends on the market realized and implied volatility. We observe that by consistently hedging long and short positions in options we can eventually end up with pure exposure to volatility without any options in the portfolio at all. The...

Based on comprehensive regulatory data on equity mutual fund option use from the SEC's N-SAR filings, we are the first to present consistent evidence that equity funds' option use generates higher risk-adjusted performance. We further show that this is a direct effect of option use and not an...

Developed countries apply different security mechanisms in regulation to protect defined pension benefits: solvency requirements, a pension guarantee fund, and sponsor support. We test the performance of these mechanisms in terms of the protection offered to pension benefits in relation to the...