We document that leverage-adjusted returns on S&P 500 index call and put portfolios are decreasing in their strike-to-price ratio over 1986-2010, contrary to the prediction of the Black-Scholes-Merton model. We test a large number of plausible unconditional factor models and find that only...

The paper concerns an issue of existence of a risk premium in equity and index futures markets. The paper consists of four parts. The first part describes the basic hypotheses of forward curves in the futures market. In the second section, I formulate 5 hypotheses concerning a risk premium in...

A key issue in understanding option pricing is the response of option implied volatility to macro-economic announcements. We use high frequency data on ASX SPI 200 Index Options to examine the response of option implied volatility, as well as higher moments of the underlying return distribution,...

A perceived increase in correlation during turbulent market conditions implies a reduction in the benefits arising from portfolio diversification. Unfortunately, it is exactly then that these benefits are most needed. To determine whether diversification truly breaks down, we investigate the...

Financial decision makers often consider the information in currency option valuations when making assessments about future exchange rates. The purpose of this paper is to systematically assess the quality of option based volatility, interval and density forecasts. We use a unique dataset...