The objective of this paper is to evaluate option pricing performance on the cross sectional level. For this purpose, we propose a statistical framework, in which we in particular account for the uncertainty associated with the reported pricing performance. Instead of a single figure, we...

In this paper, we conduct skewness term structure tests to check whether the temporal structure of risk-neutral skewness is consistent with rational expectations. Because risk-neutral skewness is substantially mean reverting, skewness shocks should decay quickly and risk-neutral skewness of more...

Using an equilibrium asset and option pricing model in a production economy under jump diffusion, we derive an analytical link between the equity premium, risk aversion and the systematic variance and skewness risk premium. In an empirical application of the model using more than 20 years of...

The collapse of Lehman Brothers in 2008 marked the peak of a financial crisis that is affecting the entire world of finance. This period is characterized by increasing fear of further defaults by corporations (including banks) or even by countries. In reaction, investors began shifting their...

Proponents of the efficient markets hypothesis would claim that investors correctly and timely incorporate new information into asset prices. Bayesian rationality is assumed to be a good description of investor behavior (Fama (1965, 1970)). However, the quality of information disclosure differs...