Standard Fama-French and Carhart models produce economically and statistically significant nonzero alphas even for passive benchmark indices such as the S&P 500 and Russell 2000. We find that these alphas primarily arise from the disproportionate weight the Fama-French factors place on small...

Guasoni (2006) introduced a simple condition for the absence of arbitrage opportunities. In this note we show that his results remain valid under a weaker notion of arbitrage which arises by excluding liquidation costs from the value process of a portfolio

Substantial progress has been made in extending the Black-Scholes model to incorporate such features as stochastic volatility, stochastic interest rates and jumps.On the empirical front, however, it is not yet known whether and by how much each generalized feature will improve option pricing and...

Substantial progress has been made in extending the Black- Scholes model to incorporate such features as stochastic volatility, stochastic interest rates and jumps. On the empirical front, however, it is not yet known whether and by how much each generalized feature will improve option pricing...

This article empirically analyzes some properties shared by all one-dimensional diffusion option models. Using S&P 500 options, we find that when sampled intraday (or inter-day), (i) call (put) prices often go down (up) even as the underlying price goes up, and (ii) call and put prices often...

Recent empirical studies find that once an option pricing model has incorporated stochastic volatility, allowing interest rates to be stochastic does not improve pricing or hedging any further while adding random jumps to the modeling framework only helps the pricing of extremely short-term...

Arguments for creating a market to allow trading the portfolio of all endowments in the entire world, the "market portfolio," are considered. This world share market would represent a radical innovation, since at the present time only a small fraction of world endowments are traded. Using a...

Financial markets witness high levels of activity at certain times, but remain calm at others. This makes the flow of physical time discontinuous. Therefore using physical time scales for studying financial time series, runs the risk of missing important activities. An alternative approach is...

The impact of exchange rate uncertainty on international trade has been discussed controversially in economic policy and theory for a long time. The paper surveys the theoretical investigations on this topic. The early modeis which analyse the influence of exchange rate uncertainty on trade,...

This study re-examines the return-volatility relationship and dynamics under a new VAR framework. By analyzing two model-free implied volatility indices - VIX (the U.S.) and VKOSPI (Korea) - and their corresponding stock market indices, we found an asymmetric volatility phenomenon in both...