Asian options are options based on some average of the underlying asset price. Generally, an Asian option is an option whose payoff depends on the average price of the underlying asset during a pre-specified period within the option's lifetime, and a pre-specified observation frequency. We...

In this paper we study the development of interest rate risk premium and option implied state price densities in the Euribor futures option market. Using parametric and non-parametric statistical calibration, we transform the risk-neutral option implied densities for the Euribor futures rate...

Most empirical studies on arbitrage opportunities tend to focus on arbitrage resulting from two “securities”, normally option value in relation to its underlying assets. However, in this empirical study it is illustrated that by writing “different” option values the “amount” of...

U.S. exchange-traded stock options are exercisable before expiration. While put options should frequently be exercised early to earn interest, they are not. In this paper, we explain an early exercise decision rule and then examine actual exercise behavior during the period January 1996 through...

Psychological barriers are prevalent among various asset classes, and it is important to consider their impact on the prices of derivative securities. This paper demonstrates the potential existence of such barriers on the S&P 500 Index and examines their impact on this index's rate of return...

There is a link between barrier options and tax shields of interest expense. We combine this link with a traditional valuation approach, to present practical valuation formulas for interest tax shields in three debt scenarios with risk of default: (1) constant debt, (2) delayed debt, and (3)...

A recent empirical study (Constantinides et al, 2011) argues that S&P 500 Index call options are frequently overpriced in the sense that any rational agent can improve her expected utility by writing these calls. Little work has addressed why such apparent mispricing is so common. For the first...

This study provides a generalized framework under which all types of Asian options can be priced, fixed and floating strike, forward-starting and in-progress. We not only extend the previous studies to our framework, but propose a new and theoretically supported closed-form approximation for the...

In this paper we consider the problem of pricing and hedging European derivatives written on two underlying assets, when individual marginal distributions are known. Our aim is twofold. First, we conduct a parallel analysis between implied volatility and implied correlation for spread options in...

Partial-integro differential formulations are often used for pricing American options under jump-diffusion models. A survey on such formulations and numerical methods for them is presented. A detailed description of six efficient methods based on a linear complementarity formulation and finite...