We show that a dynamic model of investment and capital structure choices, where the firm faces real and financial frictions, can generate option prices and implied volatilities that are in line with those of the average optionable stock. As the balance between the fundamental economic forces...

We show that a structural model of firm decisions can produce very flexible implied volatility surfaces: upward and downward sloping, u-shaped. A calibrated version of the model is able to match many unconditional financial characteristics of the average option-able stock, and can help explain...

Changes in stock prices, both when the stock price increases or decreases in price, can be used to gain profits. One of the investment instruments that can be used to profit from changes in stock prices is stock options. In addition, stock options can also be used to minimize the amount of loss...