The Volume-Synchronized Probability of Informed trading (VPIN) metric is introduced by Easley, Lopez de Prado, and O'Hara (2011a) as a real-time indicator of order flow toxicity. They find the measure useful in monitoring order flow imbalances and conclude it may help signal impending market...

Wu, Bethel, Gu, Leinweber, and Ruebel (2013b) provide a response to our commentary, "Reflecting on the VPIN Dispute.'' They interpret a few comments in our piece as questioning their VPIN implementation procedures. This is not the case. In fact, the results of WBGLR (2013a) are fully consistent...

A number of fundamental questions regarding the equity-index return dynamics are difficult to address due to the latent character of spot volatility. We exploit tick-by-tick option quotes to compute a novel "Corridor Implied Volatility,'' or CX, index which may serve as an observable proxy for...

We study how the excess market return depends on the time of the day using E-mini S&P 500 futures that are actively traded for almost 24 hours. Strikingly, four hours around European open account for the entire average market return. This period's returns are consistently positive in every year,...

This paper implements a model-free approach to measure the market price of the variance risk. In this approach, the value of the variance contract is estimated from prices of traded options. We find that the variance risk is priced, its risk premium is negative and economically very large. In...

We present a market microstructure model to examine specialist's strategic participation decisions in a security market where there are noise traders, limit order traders, an insider and a specialist. We argue that the specialist's participation rate depends on the depth of the limit book and...

This paper proposes a novel nonparametric method to recover the implied risk-neutral density (RND) from option prices. The main advantages of this method are that it 1) is almost completely agnostic about the true underlying process, 2) controls against overfitting while allowing for small...

The notion of model-free implied volatility (MFIV), constituting the basis for the highly publicized VIX volatility index, can be hard to measure with accuracy due to the lack of precise prices for options with strikes in the tails of the return distribution. This is reflected in practice as the...

We document a transaction level invariance relation among concurrent activity variables in the S&P 500 futures market: return volatility per transaction is proportional to the inverse of the squared expected trade size. It captures the time series behavior extremely well. Even more strikingly,...

We study properties of the Rearrangement Algorithm (RA) in the context of inferring dependence among variables given their marginal distributions and the distribution of the sum. We show that the RA yields solutions that are “close to each other” and exhibit almost maximum entropy. The...