Since the seminal Black-Scholes model was introduced in the 1970s, researchers and practitioners have been continuously developing new models to enhance the original. All these models aim to ease one or more of the Black-Scholes assumptions, but this often results in a set of equations that is...

According to general asset pricing theory, options should reward their holders for the systematic risk they are bearing. In this paper, we study the returns of foreign exchange options. We find that, by sorting options according to the distance of their implied volatility from the historical...