L. Stentoft, “What We Can Learn from Pricing 139,879 Individual Stock Options,” (HEC Montreal, 21 December 2011).

Abstract: The GARCH framework has been used for option pricing with quite some success. While the initial work assumed conditional Gaussian innovations, recent contributions relax this assumption and allow for more flexible parametric specifications of the underlying distribution. However, until now the empirical applications have been limited to index options or options on only a few stocks and this using … Read More »


Z. Dha, E. Schaumburg. “The pricing of volatility risk across asset classes,” (University of Notre Dame, 21 November 2011).

Abstract: In the Merton (1973) ICAPM, state variables that capture the evolution of the investor’s opportunity set are necessary to explain observed asset prices. We show that augmenting the CAPM by a measure of market-wide volatility innovation yields a two-factor model that performs well in explaining the cross-section of returns on securities in several asset classes. The consistent pricing of … Read More »


T. Goodman, M. Neamtiu, and F. Zhang, “Fundamental Analysis and Option Returns,” (Yale University, October 2011).

Abstract: This paper investigates whether fundamental accounting information is appropriately priced in the options market. We find that fundamental accounting signals exhibit incremental predictive power with respect to future option returns above and beyond what is captured by implied and historical stock volatility, suggesting that the options market does not fully incorporate fundamental information into option prices. Transaction costs substantially … Read More »


D. Muravyev, “Order Flow and Expected Option Returns,” (University of Illinois at Urbana-Champaign, 12 November 2011, presented by Dimitriy Muravyev at the OptionMetrics User Conference 2012).

Abstract: The paper presents three pieces of evidence that the inventory risk faced by market-makers has a primary effect on option prices. First, I introduce a simple method for decomposing the price impact of trades into inventory-risk and asymmetric-information components. The components are inferred from the difference between price responses of the market-maker who receives a trade and those who … Read More »


A. Takeyama, N. Constantinou, and D. Vinogradov, “A Framework for Extracting the Probability of Default from Listed Stock Option Prices,” (University of Essex, 14 November 2011).

Abstract: This paper develops a framework to estimate the probability of default (PD) implied in listed stock options. The underlying option pricing model measures PD as the intensity of the jump diffusion that the underlying stock price becomes zero. We adopt a two stage calibration algorithm to obtain the precise estimator of PD. In the calibration procedure, we improve the … Read More »


T. Bali, O. Demirtas, and Y. Atilgan, “Implied Volatility Spreads and Expected Market Returns.” (Georgetown University, 1 October 2011).

Abstract: This paper investigates the intertemporal relation between volatility spreads and expected returns on the aggregate stock market. We provide evidence for a significantly negative link between volatility spreads and expected returns at the daily and weekly frequencies. We argue that this link is driven by the information flow from option markets to stock markets. The documented relation is significantly … Read More »


K. Barraclough, D. Robinson, et. al., “Using Option Prices to Infer Overpayments and Synergies in M&A Transactions,” (Vanderbilt University, 11 October 2011).

Abstract: In this paper, we use call option prices to identify synergies and news from merger and acquisition (M&A) transaction announcements. We find that M&A announcements result in large and approximately equal gains to the bidder and the target on average, with the combined gains being large enough to justify the premium paid to target shareholders. On average, M&A announcements … Read More »


K. Hamidieh, “Estimating the Tail Shape Parameter from Option Prices,” (California State University, Fullerton, June 2011).

Abstract: This paper investigates whether fundamental accounting information is appropriately priced in the options market. We find that fundamental accounting signals exhibit incremental predictive power with respect to future option returns above and beyond what is captured by implied and historical stock volatility, suggesting that the options market does not fully incorporate fundamental information into option prices. Transaction costs substantially … Read More »


M. Chesney, R. Crameri, and L. Mancini, “Detecting Informed Trading Activities in the Options Markets: Appendix on Subprime Financial Crisis,” Swiss Finance Institute Research Paper No. 11-38 (21 September 2011).

Abstract: This supplemental appendix extends the empirical results in the main paper. Abnormal trading activities on call and put options are analyzed for 19 companies in the banking and insurance sectors from January 1996 to September 2009. Our empirical findings suggest that certain events such as the takeovers of AIG and Fannie Mae/Freddie Mac, the collapse of Bear Stearns Corporation … Read More »


I. Dumitrescu and V. Ivanova, “The Fear of Rare Economic Disasters Reflected in Option Prices,” (Goethe University Frankfurt, 17 November 2011).

Abstract: We investigate the pricing of risk-neutral skewness in the stock options market by creating skewness assets comprised of two option positions (one long and one short) and a position in the underlying stock. The assets are created such that exposure to changes in the price of the underlying stock (delta), and exposure to changes in implied volatility (vega) are … Read More »