In this paper, we present a new precipitation model based on a multi-factor Ornstein-Uhlenbeck approach of pure-jump type. In this setup, we derive a representation for the related precipitation swap price process and infer its risk-neutral time dynamics. We further deduce a pricing formula for...

Arbitrage and liquidity are interrelated. Liquidity facilitates arbitrageurs’ trading on deviations from the law of one price. However, whether arbitrage opportunity leads to an increase or decrease in liquidity depends on the cause of the deviation. A demand shock leads to greater liquidity,...

The implied volatilities provided by OptionMetrics in the IvyDB database suggest substantial deviations from put-call parity that do not really exist. In S&P 500 options, artificial deviations occur because OptionMetrics uses non-synchronous index and option prices and an average implied...

Volatilities implied from interest rate swaptions are used to assess the size and the sign of the compensation for volatility risk, for dollar, euro and pound rates at a daily frequency, between October 1998 and August 2006. The measurement of the volatility risk premium rests on a simple model...

Cryptocurrencies provide a unique opportunity to identify how derivatives impact spot markets. They are fully fungible, trade across multiple spot exchanges at different prices, and futures contracts were selectively introduced on bitcoin (BTC) exchange rates against the USD in December 2017....

The study examines the impact of liquidity risk on freight derivatives returns. The Amihud liquidity ratio and bid-ask spreads are utilized to assess the existence of liquidity risk in the freight derivatives market. Other macroeconomic variables are used to control for market risk. Results...

This paper develops a methodology to test whether recent developments on world oil markets are in line with the hypothesis of efficient markets. We treat the joint hypothesis problem as stated by Fama (1970), Fama (1991), that market efficiency can only be assessed in conjunction with a price...