An elementary arbitrage principle and the existence of trends in financial time series, which is based on a theorem published in 1995 by P. Cartier and Y. Perrin, lead to a new understanding of option pricing and dynamic hedging. Intricate problems related to violent behaviors of the underlying,...

Using detailed holdings of exchange-traded options, we examine how mutual funds use options and how options affect portfolio performance and risk. Options users underperform nonusers by two to three percent per year. The underperformance is especially pronounced for funds that are heavy users of...

Using detailed options holdings, we examine how mutual funds' use of options affects performance and risk. Using options generates, on average, no performance advantages. In fact, funds that follow certain distinct strategies underperformed. The only salutary impact is lower portfolio risk for a...