J. Driessen, P. Maenhout, and G. Vilkov, “The Price of Correlation Risk: Evidence from Equity Options,” Journal of Finance, June 2010.

Abstract: We study whether exposure to market-wide correlation shocks affects expected option returns, using data on S&P100 index options, options on all components, and stock returns. We find evidence of priced correlation risk based on prices of index and individual variance risk. A trading strategy exploiting priced correlation risk generates a high alpha and is attractive for CRRA investors without … Read More »


D. Diavatopoulos, J. Doran, and D. Peterson, “The Information Content in Implied Idiosyncratic Volatility and the Cross-Section of Stock Returns: Evidence from the Option Markets,” Journal of Futures Markets, Forthcoming.

Abstract: Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Prior studies are based on historical realized volatility. Implied volatilities from option prices represent the market’s assessment of future risk and are likely a superior measure to historical realized volatility. We use implied idiosyncratic volatilities on firms with traded options … Read More »


S. Xiaoyan Ni, J. Pan, A.M. Poteshman, “Volatility Information Trading in the Option Market.” The American Finance Association, Forthcoming.

Abstract: This study follows the approach of Ni et al. [Ni, S.X., Pan, J., Poteshman, A.M., 2008. Volatility information trading in the option market. Journal of Finance 63, 1059-1091] – based upon the vega-weighted net demand for volatility – to determine whether volatility information exists within the Taiwan options market. Our empirical results show that foreign institutional investors possess the … Read More »


R. Elkamhi, C. Ornthanalai, “Market Jump Risk and the Price Structure of Individual Equity Options.” (presented by Kadir Babaoglu at the OptionMetrics User Conference 2012).

Abstract: The role of market jump risk premium implicit in individual equity options has not been examined to date. This paper develops a new factor model for equity returns and option pricing that takes into account the market’s diffusive and jump risks. We estimate the model on a large cross section of equity returns and options. We find that market … Read More »


F. Audriono, D. Colangelo, “Semi-parametric forecasts of the implied volatility surface using regression trees.” (Statistics and Computing, 20 (4), 421-434).

Abstract: The role of market jump risk premium implicit in individual equity options has not been examined to date. This paper develops a new factor model for equity returns and option pricing that takes into account the market’s diffusive and jump risks. We estimate the model on a large cross section of equity returns and options. We find that market … Read More »


A. Hansis, C. Schlag, G. Vilkov “The Dynamics of Risk-Neutral Implied Moments: Evidence from Individual Options” (working paper series)

Abstract: We study the estimation, the dynamics, and the predictability of option-implied risk-neutral moments (variance, skewness, and kurtosis) for individual stocks from various perspectives. We first show that it is in the estimation of the higher moments essential to use an interpolation with a narrow grid as well as a wide interval. We show that implied moments are well explained … Read More »


M. Cao and J. Wei, “Commonality in Liquidity: Evidence from the Option Market,” Journal of Financial Markets, Vol. 13, No. 1, 2010.

Abstract: This study examines the property of liquidity in the option market. Using IvyDB’s OptionMetrics data for the period of January 1, 1996 to December 31, 2004, we establish convincing evidence of commonality in options liquidity. The commonality remains strong even after controlling for the impact of the underlying stock market and other liquidity determinants. Other findings include: 1) the … Read More »