In this paper, we combine modern portfolio theory and option pricing theory so that a trader who takes a position in a European option contract and the underlying assets can construct an optimal portfolio such that at the moment of the contract's maturity the contract is perfectly hedged. We...

This paper analyzes the capital structure of private asset managers in which theacquisition of nonperforming loans (NPLs) is funded with Contingent Convertibles(CoCos) placed with investors. The paper develops a model based on NPL transferprices and residual recovery rates to assess capital...

I extend the application of Bandi and Tamoni (2014)'s time series decomposition to other asset classes, such as fixed income, credit and credit derivatives, and other models, such as the Fama and French three factor model. I document a significant increase in R squared from using the...

It is well established that the VIX Index tends to be negatively correlated with equity markets. This suggests that VIX futures and options may have the potential to provide significant diversification benefits for traditional portfolios. However, since the term structure of VIX futures is...

The term structure of VIX futures is generally upward sloping. The persistent VIX contango may result in abnormally strong performance for VIX futures selling or VIX call writing strategies. However, the high volatility of volatility and significant jump risk may expose short uncovered VIX...

While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. We develop a four-factor asset pricing model of commodity returns. Our four-factor model prices both commodity spot and term risk premia in an intuitive manner related to...

This article explores the relationship between option markets for the S&P500 (SPX) and CBOE's Volatility Index (VIX). Results are obtained by using the so-called time-spread portfolio to replicate a future contract on the squared VIX. The time-spread portfolio is interesting because it provides...

Recent equity volatility is near all-time lows. Option prices are also low. Many analysts suggest this represents a good opportunity to purchase put options for portfolio insurance.It is well-known that portfolio insurance is expensive on average, but what about in calm markets? History suggests...

We analyze the Merton portfolio optimization problem when the growth rate is an unobserved Gaussian process whose level is estimated by filtering from observations of the stock price. We use the Kalman filter to track the hidden state(s) of expected returns given the history of asset prices, and...

With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the investor minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time, semi-static market of stocks and options. Based on duality...