Crude prices are subject to both demand and supply shocks. Major events and structural changes can induce large variations in intensities of the two types of shocks, as well as their magnitudes of impacts on crude price movements. This paper proposes a theoretical framework that allows us to...

This paper develops a new top-down valuation framework that links the pricing of an option investment to its daily profit and loss attribution. The framework uses the Black-Merton-Scholes option pricing formula to attribute the short-term option investment risk to variations in the underlying...

This paper proposes a linear option pricing model by imposing common market pricing on decentralized risk exposure estimates across option contracts underlying the same security. The model embeds historical moment estimators to anchor the breakeven contribution of each risk source. A...

Accurate company valuation is the starting point of value investing and corporate decisions. This paper proposes a statistical factor model to generate company valuation comparison across a large universe. The model scales the market value of a company by its book capital to generate a...

We propose to use the linearity-generating framework to accommodate the evidence of unspanned stochastic volatility: Variations in implied volatilities on interest-rate options such as caps and swaptions are independent of the variations on the interest rate term structure. Under this framework,...

This paper develops a decentralized theory that determines the fair value of the yield-to-maturity of a bond or bond portfolio based purely on the near-term dynamics of the yield itself. The theory decomposes the yield into three components: its expected change, its risk premium, and its...