We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between...

We examine the impact of interest rates benchmark reform and upcoming Libor transition on options markets. We address various modelling challenges the transition brings. We specifically focus on the impact of the clearing houses' discounting switch on swaptions, and the consequences of Libor...

An option market maker incurs funding costs when carrying and hedging inventory. To hedge a net long delta inventory, for example, she pays a fee to borrow stock from the security lending market. Because of haircuts, she posts additional cash margin to the lender which needs to be financed at...

This paper examines the impact of Basel III leverage ratio on the competitive landscape of US derivatives markets. Because the leverage ratio focuses on notional amounts and does not fully recognize offsetting positions and risk-mitigating collateral, it is more likely the binding constraint for...

We provide evidence of a strong effect of the underlying stock's illiquidity on option prices by showing that the average absolute difference between historical and implied volatility increases with stock illiquidity. This pattern translates into significant excess returns of option trading...

We study the real-time characteristics and drivers of jumps in option prices. To this end, we employ high frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the...

We investigate the effect of including variance derivatives as calibration and hedging instruments for pricing and hedging exotic structures. This is studied empirically using market data for SPX and VIX derivatives applied in a stochastic volatility jump diffusion model

Financial markets exhibit high levels of volatility. Volatile markets are usually associated with high risks and uncertain investment returns. Financial institutions therefore, usually opt to hedge their investment portfolios against the high volatility using a suitable hedging structure. One...

In this paper we represent alternative approach for exotics options valuation problem. We study the time-space discrete valuation setting that usually referred to as the binomial scheme if states are two. The main distinction of the alternative pricing approach is that we interpret price of the...