We provide a detailed characterization of arbitrage-free asset prices in the presence of capital gains and income taxes. The distinguishing feature of our analysis is that we impose on the model two important features of the tax code: the limited use of capital losses and the inability to wash...

We examine the predictability of stock returns using implied volatility spreads (VS) from individual (non-index) options. Volatility spreads can occur under simple no-arbitrage conditions for American options when volatility is time-varying, suggesting that the VS-return predictability could be...