We introduce a flexible, time-varying network model to trace the propagation of interest rate surprises across different maturities. First, we develop a novel econometric framework that allows for unknown, potentially asymmetric contemporaneous spillovers across panel units, and establish the...

We develop an option pricing model for calls and puts written on leveraged equity in an economy with corporate taxes and bankruptcy costs. The model explains implied Black-Scholes volatility biases by relating them to the firm's structural characteristics such as leverage and debt covenants. We...

We study the partial equilibrium portfolio optimization problem for a myopic CRRA investor who can trade options on individual stocks. Applying the parametric portfolio approach of Brandt, Santa-Clara, and Valkanov (forthcoming) to derivatives, we show that options characteristics (such as...

We study the dynamics and cross-sectional properties of the variance risk premia embedded in options on stocks and indices, approximated by the synthetic variance swap returns. Several important stylized facts and contributions arise. First, variance risk premia for indices are systematically...

We study the cross-section of stock options returns and find an economically important source of mispricing in individual equity options. Sorting stocks based on the difference between historical realized volatility and market implied volatility, we find that a zero-cost trading strategy that is...

We assess the presence and nature of strategic trading by informed investors in the options market. Specifically, we develop and test a model for the spread of an option that directly captures the effects of strategic trading by informed traders. We show that the underlying stock's spread has an...

This paper develops GARCH and VEC-MGARCH-based tests of four hypotheses from Fama and French (1988) involving linkages between spot and futures prices --- both their levels and variances. The tests are applied to monthly data for seven metals traded on the London Metal Exchange over the period...

This paper examines the relationship between currency option's implied skewness and its future realized skewness, where the difference is known as the skewness risk premium (SRP). The SRP indicates whether investors pay a premium to be insured against future crash risk. Past investigations about...

The Jarrow and Yildirim model for pricing inflation indexed derivatives is still the main reference technique adopted in the inflation market. Despite its popularity it has several shortcomings, the most immediate of which is the difficulty of calibration to market prices of options. The model...

The slope of the implied volatility term structure is positively related to future option returns. We rank firms based on the slope of the volatility term structure and analyze the returns for straddle portfolios. Straddle portfolios with high slopes of the volatility term structure outperform...