Option pricing models are tools for pricing and hedging derivatives. Good models are complex and the econometrician … portfolios that aggregate option data, and track changes in risk-neutral volatility and skewness. These low-dimensional filters … designs outperform those that try to use all the available option data. I construct Unscented Kalman Filters around option …

allows us to rewrite the hedging portfolio explicitly in terms of the Malliavin derivative of the discounted payoff. We … illustrate this new result with two applications. Firstly, we obtain a closed-form expression for the hedging portfolio of a … barrier option on a bond. Secondly, we solve explicitly the optimal portfolio problem in our framework. Related to this issue …

option portfolios. The new methodology preserves the variance swap interpretation that decomposes returns into realized … variance and option implied-variance.We apply this new methodology to explore return momentum on option portfolios across …). In contrast to stock momentum, option momentum lasts for up to five years, and does not reverse …