Equity options display a strong factor structure. The first principal components of the equity volatility levels, skews, and term structures explain a substantial fraction of the cross-sectional variation. Furthermore, these principal components are highly correlated with the S&P500 index option...

We develop a continuous-time intertemporal CAPM model that allows for risky beta exposure, which we explicitly specify. In the model, the expected return on a stock depends on beta's co-movement with market variance and more generally with the stochastic discount factor and deviates from the...

Value-at-Risk (VaR) has emerged as the standard tool for measuring and reporting financial market risk. Currently, more than eighty commercial vendors offer enterprise or trading risk management systems which report VaR-like measures. Risk managers are therefore often left with the daunting task...

Yes. We use intraday data to compute weekly realized variance, skewness and kurtosis for individual equities and assess whether this week?s realized moments predict next week?s stock returns in the cross-section. We sort stocks each week according to their past realized moments, form decile...

Illiquidity is well-known to be a signi?cant determinant of stock and bond returns. We report on illiquidity premia in equity option markets. An increase in option illiquidity decreases the current option price and predicts higher expected option returns. This effect is statistically and...

Under very general conditions, the total quadratic variation of a jump-diffusion process can be decomposed into diffusive volatility and squared jump variation. We use this result to develop a new option valuation model in which the underlying asset price exhibits volatility and jump intensity...

Equity risk measured by beta is of great interest to both academics and practitioners. Existing estimates of beta use historical returns. Many studies have found option-implied volatility to be a strong predictor of future realized volatility. We .nd that option-implied volatility and skewness...

Most recent empirical option valuation studies build on the affine square root (SQR) stochastic volatility model. The SQR model is a convenient choice, because it yields closed-form solutions for option prices. However, relatively little is known about the resulting biases. We investigate...

This paper presents a new model for the valuation of European options, in which the volatility of returns consists of two components. One of these components is a long-run component, and it can be modeled as fully persistent. The other component is short-run and has a zero mean. Our model can be...

Few issues are more important for finance practice than the computation of market betas. Existing approaches compute market betas using historical data. While these approaches differ in terms of statistical sophistication and the modeling of the time-variation in the betas, they are all...