Asymmetric volatility concerns the relation of returns to future expected volatility. Much is known from option prices about the marginal risk-neutral distributions of S&P 500 returns and of relative changes in future expected volatility (VIX). While the bivariate risk-neutral distribution...

This paper provides a number of relevant guidelines to build a consistent Volatility Smile accounting for the FX market conventions. This consistency is understood as fitting a model which is able to price vanilla options across all possible strikes given the knowledge of a few market...

Option-implied moments, like implied volatility, contain useful information about an underlying asset's return distribution, but are derived under the risk-neutral probability measure. This paper shows how to convert risk-neutral moments into the corresponding physical ones. The main theoretical...

Uncertainty finance presents alternative models for derivative valuation relevant to markets willing to consider subjective information or expert criterium in their operation. This paper proposes a methodology based on experimental data for comparing the prices and the delta and vega risks for...

Using prices of both S&P 500 options and recently introduced VIX options, we study asset pricing implications of volatility risk. While pointing out the joint pricing kernel is not identified nonparametrically, we propose model-free estimates of marginal pricing kernels of the market return and...

We investigate the effects of return jumps on option bid-ask spreads measured in implied volatility. To explain bid-ask spread quoting behavior, we construct a general model with market makers trading in an incomplete market in which a Bernoulli-type jump could occur. Following a numerical...

In this paper, we propose a novel parametric approach to extract the implied risk-neutral density function from a cross-section of call option prices. The method is based on the framework proposed by Orosi (2011), who presents a multi-parameter extension of the models of Figlewski (2002) and...

We investigate the effect of including variance derivatives as calibration and hedging instruments for pricing and hedging exotic structures. This is studied empirically using market data for SPX and VIX derivatives applied in a stochastic volatility jump diffusion model

In this paper we consider the problem of pricing and hedging European derivatives written on two underlying assets, when individual marginal distributions are known. Our aim is twofold. First, we conduct a parallel analysis between implied volatility and implied correlation for spread options in...

We analyze model risk for the pricing of barrier options. In contrast to existing literature, this paper is based on an empirical data set of over 40,000 bonus certificates to analyze the real market extent of model risk for traded barrier options instead of purely synthetic options. For this...