Purpose – Option pricing based on Black-Scholes model is typically obtained under the assumption that the volatility of the return is a constant. The purpose of this paper is to develop a new method for pricing derivatives under the jump diffusion model with random volatility by viewing the...

The origin of the volatility smile phenomenon observed in options markets has eluded the financial world for more than two decades. We provide a new explanation of this phenomenon using a microscopic multi-agent description of markets. In our model individual trading behavior is explicitly...

Purpose – The purpose of this paper is to test for and model non-linearities in option price deviations from the Black Scholes (BS) model in FTSE 100 index options over the time period 1997-2006. Design/methodology/approach – The economic specification and estimation methodology is outlined,...

Purpose – The purpose of this paper is to provide a scenario-based risk measure for a portfolio of European-style derivative securities over a fixed time horizon under the regime switching Black-Scholes economy. Design/methodology/approach – The risk measure is constructed by using the...

Purpose – The purpose of this paper is to study the importance of business time, and market opening/closing times and days, for American option pricing. Design/methodology/approach – A Bermudan pricing approach is employed whereby the option can be exercised only during the times and days...

Purpose – In this paper, the authors aim to test the assertion that options act as a substitute for short sales by allowing investors an alternative way to act on bearish sentiment. An empirical test of this assertion requires a researcher to observe both types of firm – those that weren’t...

This paper assesses implementation of the International Organization of Securities Commissions' (IOSCO) objectives and principles of securities regulation in Spain. Spain exhibits a high level of implementation of principles. The legal framework is robust and provides the Comisión Nacional de...