This paper examines the information embedded in both the stock and option markets prior to takeover announcements. During normal periods, buyer-seller initiated stock volume imbalances are significant predictors of next-day stock returns and option volume imbalances are uninformative. However,...

Substantial progress has been made in developing more realistic option pricing models. Empirically, however, it is not known whether and by how much each generalization improves option pricing and hedging. The authors fill this gap by first deriving an option model that allows volatility,...

This article empirically analyzes some properties shared by all one-dimensional diffusion option models. Using S&P 500 options, we find that sampled intraday (or interday) call (put) prices often go down (up) even as the underlying price goes up, and call and put prices often increase, or...