Over-allotment arrangements are nowadays part of almost any initial public offering. The underwriting banks borrow stocks from the previous shareholders to issue more than the initially announced number of shares. This is combined with the option to cover this short position at the issue price....

This paper shows that the VIX market contains information on the variance of the S&P 500 returns, which is not already spanned by the S&P 500 market. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. We find that including...

In this paper, I study risk-neutral probability densities regarding future Libor rates denominated in British pounds, euros, and US dollars as implied by option prices. I apply Breeden and Litzenberger's (1978) result regarding the relationship between option prices and implied probabilities for...

Option prices, particularly those of out-of-the-money equity index puts, are difficult to justify in a no-arbitrage framework. This paper shows how limits to arbitrage affect the relative pricing of out-of-the-money put vs. call options (option-implied skewness). Decomposing the price of...

A callable leveraged constant maturity swap (CMS) spread note allows the holder to benefit from future changes in the spread between two swap interest rates. The issues retains the right to call the note at pre-specified times in the future. The note is priced via Monte Carlo simulation using...

The finance literature has found it challenging to explain empirically observed option returns, most notably in the case of out-of-the-money (OTM) equity index puts. I propose liquidation risk in options markets, defined as the possibility of forced selling of speculative positions following a...

Given a spread option with underlyings X,Y and a copula model, we construct explicitly payoff functions f and g such that all first order greeks of the spread option with respect to the marginal distributions are matched by those of the replication portfolio {f(X),g(Y)}.Standard replication...

In this paper we study the development of interest rate risk premium and option implied state price densities in the Euribor futures option market. Using parametric and non-parametric statistical calibration, we transform the risk-neutral option implied densities for the Euribor futures rate...

We study minute-by-minute behavior of the VIX index and trading activity in the underlying S&P 500 options to understand the impact of macro and microeconomic forces on risk neutral volatility. VIX often increases with macroeconomic news, reflects the credibility of Fed monetary stimulus, and...