In this paper we provide a closed form option pricing model with underlying uncertainty modeled as an exponential Lévy process. The stochastic structure of our model relaxes the restrictive assumption of zero covariance between the Brownian motion and Poisson process jump size found in all...

Extracting information from daily CDS spreads, we propose a measure of correlated default risk, which we show is a meaningful predictor of bankruptcy clusters. Focusing on U.S. corporate bonds, we also find that our measure of correlated default risk is more pronounced and commands a higher...

We derive the total variance risk premium for an index in the stochastic environment of Driessen, Maenhout and Vilkov (2009) and correct the previous authors omission of certain components which contribute significantly to index option expected returns. This study provides a mathematically...