This paper presents option-pricing solutions to the inventory-stocking problem when demand is distributed discretely or continuously. The model readily incorporates inventory salvage values and stockout costs, and shows that option-pricing models can be used to determine the optimal stocking...

The Black-Scholes (1973) model frequently misprices deep-in-the-money and deep-out-of-the-money options. Practitioners popularly refer to these strike price biases as volatility smiles. In this paper we examine a method to extend the Black-Scholes model to account for biases induced by nonnormal...

We extend the market microstructure literature by examining trading strategies of a small discretionary liquidity trader in call and continuous markets. Our investigation of trading strategies uses intraday market and limit orders, and introduces the market-at-open order as an alternative...

The Black-Scholes* option pricing model is commonly applied to value a wide range of option contracts. However, the model often inconsistently prices deep in-the-money and deep out-of-the-money options. Options professionals refer to this well-known phenomenon as a volatility 'skew' or 'smile'....

We use an implicit alternating direction numerical procedure to estimate the value of a fixed‐rate mortgage (FRM) with embedded default and prepayment options. The value of FRMs depends on interest rates, the house value, and mortgage maturity. Our numerical results suggest that the joint...