risk premium of 88 basis points of incremental return for each unit of volatility risk …In this analysis we are concerned with the issue of whether market forecasts of volatility, as expressed in the Black … comprising 5-minute returns, makes volatility the subject process of interest, to which innovations are introduced via a …

Inspired by the theory of social imitation (Weidlich 1970) and its adaptation to financial markets by the Coherent …. We consider three kinds of market scenarios: Risk-neutral investors, representative Bernoulli investors and myopic … Bernoulli investors. In case of the latter two, risk premia provide that herding as well as contrarian investor behaviour may be …

Contracts with embedded prepayment/extension options are subject to behavioral risk, due to the unpredictable exercise … in future cash flows. In this paper, we propose a general framework to model behavioral risk by exploiting a parallel … with credit risk modeling. Early redemption probabilities are assimilated to default probabilities and investor decisions …

Classic option pricing theory values a derivative contract via dynamic replication, and views the derivative as … reducing the risk in derivative investments, the remaining risk can still be large and significant due to practical limits of … arbitrage. Because of these limits, derivative securities can play primary roles in risk allocation and investors can demand …

risk preference factor. We investigate whether these factors perform better to forecast realized volatility if constructed … (S&P, FTSE, CAC, SMI and DAX), we separate option-implied volatility into Ross-recovered true expected volatility and a … locally or globally, yielding new insights to understand international dynamics in risk expectations and preferences. We find …

The option implied volatility spread and skew predict stock returns. These variables also reflect the expected cost of … stock returns; however, the volatility spread and skew do not once this implied fee is considered. Results are similar for a … yet in stock prices. These findings indicate that the volatility spread and skew predict returns because they proxy for …

This paper examines whether financial statement information can predict future realized volatility incremental to the … volatility implied by option market prices. Prior research establishes that option-implied volatility is a biased estimator of … future realized volatility. I use an analytical framework to identify accounting-based drivers of equity returns volatility …