S. De Wachter, “Simple Option Pricing and the Leverage Effect,” (Working paper, University of Oxford, December 2005).

ABSTRACT: This paper develops a nonparametric test to investigate whether any of two classes of “simple” models can rationalize observed option prices. These classes are (i) processes with independent returns and (ii) univariate Markov processes. The practice of recalibration is mimicked by only imposing minimal stability requirements on the candidate pricing models. The main finding is that processes with independent … Read More »


R.B. Evans, C.C. Geczy, D.K. Musto, and A.V. Reed, “Failure is an Option: Impediments to Short Selling and Options Prices,” (Seminar paper, Boston College, University of Pennsylvania, and University of North Carolina, 7 December 2005).

Abstract: Regulations allow market makers to short sell without borrowing stock, and the transactions of a major options market maker show that in most hard-to-borrow situations, it chooses not to borrow and instead fails to deliver stock to its buyers. Some of the value of failing passes through to option prices: when failing is cheaper than borrowing, the relation between … Read More »


Y. Tang, “Essays on Credit Risk,” (PhD diss., University of Texas at Austin, December 2005).

This dissertation examines the determinants of credit spreads. The purpose and contribution of this dissertation is to provide a more comprehensive and coherent view of credit risk valuation. Specially, I examine the effects of previously overlooked factors (in addition to conventional factors such as market nancing costs, rm leverage, and risk)on credit risk using credit default swap (CDS) rates that … Read More »


A. Saretto, “Option Returns and the Cross-Sectional Predictability of Implied Volatility,” (Seminar paper, Purdue University, November 2005).

Abstract: I study the cross-section of realized stock option returns and find an economically important source of predictability in the cross-sectional distribution of implied volatility. A zero-cost trading strategy that is long in straddles with a large positive forecast of the change in implied volatility and short in straddles with a large negative forecast produces an economically important and statistically … Read More »


M.J. Brennan, X. Liu, Y. Xia, “Option Pricing Kernels and the ICAPM,” University of California eScholarship Repository (29 June 2005).

Abstract We estimate the parameters of pricing kernels that depend on both aggregate wealth and state variables that describe the investment opportunity set, using FTSE 100 and S&P 500 index option returns as the returns to be priced. The coefficients of the state variables are highly significant and remarkably consistent across specifications of the pricing kernel, and across the two … Read More »


S. Xiaoyan Ni, N.D. Pearson, and A.M. Poteshman, “Stock Price Clustering on Option Expiration Dates,” Journal of Financial Economics 78 (3 May 2005): 49 – 87.

Abstract: This paper presents striking evidence that option trading changes the prices of underlying stocks. In particular, we show that on expiration dates the closing prices of stocks with listed options cluster at option strike prices. On each expiration date, the returns of option able stocks are altered by an average of at least 16.5 basis points, which translates into … Read More »


S.T.Bharath and T. Shumway, “Forecasting Default with the KMV-Merton Model,” (Seminar paper, University of Michigan, 26 April 2005).

Abstract: This paper argues that firms may not issue debt in order to avoid the adverse selection cost of debt. Theory suggests that since debt is a concave claim, it may be mispriced when outside investors are uninformed about firms’ risk. The empirical literature has however paid little attention the caveat that the “lemons” problem of external financing first identified … Read More »


N. Halov and F. Heider, “Capital Structure, Risk and Asymmetric Information,” (Seminar paper, Centre for Financial Analysis and Policy, University of Cambridge, 29 April 2005).

Abstract: This paper argues that firms may not issue debt in order to avoid the adverse selection cost of debt. Theory suggests that since debt is a concave claim, it may be mispriced when outside investors are uninformed about firms’ risk. The empirical literature has however paid little attention the caveat that the “lemons” problem of external financing first identified … Read More »


J. McDowell, “A Look at the Market’s Reaction to the Announcements of SEC Investigations,” (Thesis, New York University, 1 April 2005).

The Securities and Exchange Commission was formed as a result of the stock market crash of 1929. During the crash, the market value of securities listed on the New York Stock Exchange dropped 83%, from $89 billion to $15 billion. Some of the causes of the crash were found to be a pre-crash speculative frenzy, artificially inflated trading activity, false … Read More »


P. Carr and L. Wu, “Stock Options and Credit Default Swaps: A Joint Framework for Valuation and Estimation,” (Working paper, Bloomberg LP, New York University, and Baruch College, 31 March 2005).

Abstract: We propose a dynamically consistent framework that allows joint valuation and estimation of stock options and credit default swaps written on the same reference company. We model default as controlled by a Poisson process with a stochastic default arrival rate. When default occurs, the stock price drops to zero. Prior to default, the stock price follows a continuous process … Read More »