We find that option-implied information such as forward-looking variance, skewness and the variance risk premium are sensitive to the way the volatility surface is constructed. For some state-of-the-art volatility surfaces, the differences are economically surprisingly large and lead to...

I introduce a model to estimate the risk-neutral density. Current estimation techniques use a single mathematical model to interpolate option prices on two option dimensions: strike price and time-to maturity (TTM). I propose to use B-splines with at-the-money knots for the strike price...

This article presents the liability-side pricing model of uncollateralized derivatives. In an extension to the risk-neutral pricing formula, the fair value is obtained by discounting the payoff at the liability-side's senior unsecured debt interest rates. The price difference from the default...

Asymmetric volatility concerns the relation of returns to future expected volatility. Much is known from option prices about the marginal risk-neutral distributions of S&P 500 returns and of relative changes in future expected volatility (VIX). While the bivariate risk-neutral distribution...

The value of digital options (both European and American types) can have an inverse-U shape relationship with the volatility of the underlying process! This seemingly counterintuitive proposition is driven by a particular feature of Maringale processes bounded from below (including both the...

We develop models to price long term loans in the securities lending business. These longer horizon deals can be viewed as contracts with optionality embedded in them and can be priced using established methods from derivatives theory, becoming to our limited knowledge, the first application...

This paper addresses several theoretical and practical issues in option pricing and implied volatility calibration in a fractional Black-Scholes market. In particular, we discuss how the fractional Black-Scholes model admits a non-constant implied volatility term structure when the Hurst...

Securitization of the rainfall risk involves pooling of the rainfall contingent insurance policies to issue financial instruments in the capital markets to transfer the rainfall risk from the insurers to the investors. Low income households, especially in the developing countries like India...

Low income households, especially in the developing countries could suffer losses due to weather related events such as drought, hurricanes, floods etc. Such losses could cast a household into a chronic poverty cycle - a poverty trap from which the household may find it difficult to re-emerge....

We develop models to price long term loans in the securities lending business. These longer horizon deals can be viewed as contracts with optionality embedded in them and can be priced using established methods from derivatives theory, becoming to our limited knowledge, the first application...