We show that if a particular temporal relation exists between the option and spot markets, the implied volatility in option prices can be biased depending on the level of the true volatility. The higher the true volatility, the more upward (downward) biased the implied volatility will be, if the...

Locally-capped products are an economically important and poorly understood category of structured financial products. These contracts combine a guaranteed payoff with a bonus equal to some accumulation of the capped periodic returns of a reference portfolio. We show that these products often...

We develop a model of portfolio choice to nest the views of Keynes---who advocates concentration in a few familiar assets---and Markowitz---who advocates diversification across assets. We rely on the concepts of ambiguity and ambiguity aversion to formalize the idea of investor's...

We develop a model of portfolio choice capable of nesting the views of Keynes, advocating concentration in a few familiar assets, and Markowitz, advocating diversification across all available assets. In the model, the return distributions of risky assets are ambiguous, and investors are averse...

The option pricing framework has been very useful in tackling a wide range of problems. Merton pioneered the application of this methodology to the pricing of deposit insurance for financial institutions. Most applications in the deposit insurance area assume that the volatility of the assets of...

We show that if a particular lead-lag relation exists between the option and stock markets, the implied volatility in option prices can be biased depending on the level of the true volatility. The higher the true volatility, the more upward (downward) biased the implied volatility will be, if...

Merton pioneered the application of the option pricing framework to the pricing of deposit insurance for financial institutions. Most applications in the deposit insurance area assume that the volatility of the assets of the bank is exogenous whereas is may be more realistic to assume it is...