We examine the association between active options market trading and the (in)efficiency of corporate investment in terms of deviation from optimal investment levels. Past research considers the volume of options trading as contributing to firms’ informational efficiency. Investment efficiency...

In this paper we explore the dynamics of Implied Volatility Surfaces (IVS) both in a single-currency framework, and in the context of a global, integrated market. We construct a parametric function of “moneyness” and “time-to-maturity” factors that correspond to common shapes of IVS with...

Many economic variables of interest exhibit a tendency to revert to predictable long-run levels. However, mean reverting processes are rarely used in investment models in the literature. In most models, geometric Brownian motion processes are used for tractability. In this paper, a firm's entry...

Recent general equilibrium models prescribe predictable dynamics in the volatility surfaces that are implied by observed option prices. In this paper we investigate the predictability of surfaces, using extensive time series of implied volatilities from over-the-counter options on eight...

Some investment decisions are exposed to uncertainty over their implementation phase apart from the underlying economic uncertainty. We provide a general way of introducing implementation uncertainty, which includes prior research as a special case. The generality of our treatment stems from the...