Value at Risk and similar measures of financial risk exposure require predicting the tail of an asset returns distribution. Assuming a specific form, such as the normal, for the distribution, the standard deviation (and possibly other parameters) are estimated from recent historical data and the...

The quot;leverage effectquot; refers to the well-established relationship between stock returns and both implied and realized volatility: volatility increases when the stock price falls. A standard explanation ties the phenomenon to the effect a change in market valuation of a firm's equity has...

The quot;leverage effectquot; refers to the well-established relationship between stock returns and both implied and realized volatility: volatility increases when the stock price falls. A standard explanation ties the phenomenon to the effect a change in market valuation of a firm's equity has...

In modern finance, the value of an active investment strategy is measured by comparing its performance against the benchmark of passively holding the market portfolio and the risk less asset. We wish to evaluate the marginal contribution of a theoretical derivatives pricing model in the same...

This study uncovers trading styles in the transaction records of US Treasury bond futures.It uses transaction-by-transaction data from the Commodity Futures Trading Commissions' (CFTC)Computerized Trade Reconstruction (CTR) records. The data set consists of 30 million transaction - thecomplete...

The market's risk neutral probability distribution for the value of an asset on a future date can be extracted from the prices of a set of options that mature on that date, but two key technical problems arise. In order to obtain a full well-behaved density, the option market prices must be...

An exercise boundary violation (EBV) occurs when the current bid price for an American option in the market is below intrinsic value. A seller at this price leaves money on the table and the buyer receives an arbitrage profit. In a liquid market, competition among dealers should drive up the bid...

Under Black-Scholes (BS) assumptions, empirical volatility and risk neutral volatility are given by a single parameter, which captures all aspects of risk. Inverting the model to extract implied volatility from an option's market price gives the market's forecast of future empirical volatility....

A risk-neutral probability distribution (RND) for future S&P 500 returns extracted from index options contains investors' true expectations and also their risk preferences. But the empirical pricing kernel that emerges in a representative agent framework, which suppresses investor differences,...

Derivatives valuation has strong theoretical support because models are derived from the principle that arbitrage between the derivative and its underlying will eliminate riskless profits and drive the market price to the model value. "No-arbitrage" is invoked routinely whenever a new pricing...