We model demand-pressure effects on option prices. The model shows that demand
pressure in one option contract increases its price by an amount proportional to the variance …

Uncertainty plays a key role in economics, finance, and decision sciences. Financial
markets, in particular derivative markets, provide fertile ground for understanding how …

We develop a GARCH option model with a new pricing kernel allowing for a variance
premium. While the pricing kernel is monotonic in the stock return and in variance, its …

Previous research concludes that options are mispriced based on the high average returns,
CAPM alphas, and Sharpe ratios of various put selling strategies. One criticism of these …

We use equity index options to quantify the distribution of consumption growth disasters. The
challenge lies in connecting the risk‐neutral distribution of equity returns implied by options …

We provide evidence that trading frictions have an economically important impact on the
execution and the profitability of option strategies that involve writing out-of-the-money put …

Widespread violations of stochastic dominance by 1-month S&P 500 index call options over
1986–2006 imply that a trader can improve expected utility by engaging in a zero-net-cost …

When the pricing kernel is U-shaped, then expected returns of claims with payout on the
upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped …

Stock market volatility clusters in time, appears fractionally integrated, carries a risk
premium, and exhibits asymmetric leverage effects. At the same time, the volatility risk …

The paper examines equilibrium models based on Epstein–Zin preferences in a framework
in which exogenous state variables follow affine jump diffusion processes. A main insight is …