Heterogeneity in beliefs and time preferences among investors makes stock volatility stochastic, even though the volatility of the underlying dividend is constant. The prices of the European options written on this stock admit closed-form solutions, hence their hedging deltas. The Black-Scholes...

Heterogeneity in beliefs and time preferences among investors make stock volatility stochastic, even though the volatility of the underlying dividend is constant. The prices of the European options written on this stock admit closed-form solutions, hence their hedging deltas. The Black-Scholes...

We propose and estimate a model of endogenous informed trading that is a hybrid of the PIN and Kyle models. When an informed trader trades optimally, both returns and order flows are needed to identify information asymmetry parameters. Empirical relationships between parameter estimates and...