We construct a derivative that depends on the SPY and VIX and, in this way, incorporates both the market risk premium and the variance risk premium. We show that the product's Sharpe ratio is higher than the SPY Sharpe ratio. If we invest $10000 into the product, the products' payoff is around...

Analyzing a large sample of U.S. firms, we show that the asymmetry of stock return volatility is positively related to investor attention and differences of opinion. Using the number of analysts following a given firm to capture attention and the dispersion in analyst forecasts as a common proxy...

We consider derivatives that maximize an investor's expected utility in the stochastic volatility model. We show that the optimal derivative that depends on the stock and its variance significantly outperforms the optimal derivative that depends on the stock only. Such derivatives yield a much...