Vol. 22, No. 3, 2024 Leandro Gomes, Roni Israelov and Bryan Kelly We propose a method for constructing conditional option return distributions. In our model, uncertainty about the future option return has two sources: Changes in the position and shape of the implied volatility surface that shift option values (holding moneyness and maturity fixed), and… Read more
Special Issues
The Options-Inferred Equity Premium and the Slippery Slope of the Negative Correlation Condition
Vol. 22, No. 3, 2024 Gurdip Bakshi, John Crosby, Xiaohui Gao, Jinming Xue and Wei Zhou The negative correlation condition (NCC) of Martin (2017) is that covPt (MT RT,RT )≤ 0 for all MT, where MT is the SDF and RT is the gross market return. He employs this assumption to derive a lower bound… Read more
Stock Market Insurance Prices, BL Skew, Conditional Marginal Utilities and the Equity Risk Premium
Vol. 22, No. 3, 2024 Douglas T. Breeden Option prices contain information about implicit state prices. In their recent article, Breeden and Litzenberger (B-L, 2022) demonstrated how option pricesin bond marketsfrom interest rate cap and floor price data can be used to identify the impacts of central bank policies on the distribution of state prices… Read more
Equivalent Expectation Measures for Risk and Return Analysis of Contingent Claims
Vol. 22, No. 3, 2024 Sanjay K. Nawalkha and Xiaoyang Zhuo Nearly half-a-century after the advent of equivalent martingale measures (EMMs), Nawalkha and Zhuo (2022, 2023) generalize these measures to obtain equivalent expectation measures (EEMs) for analyzing risk and return of portfolios of contingent claims over a finite horizon date. The new measures allow the… Read more
About Fischer Black
Vol. 22, No. 3, 2024 Emanuel Derman This speech is based on the chapter about Fischer Black in my 2004 book My Life as a Quant. View PDF… Read more
Retirement Security Bonds
Vol. 22, No. 3, 2024 Robert C. Merton 50th Anniversary Speech by Nobel Laureate Robert C. Merton December 1, 2023 CISDM, UMass Amherst View PDF… Read more
Introduction
Vol. 22, No. 3, 2024 Douglas Breeden, John Hull and Sanjay Nawalkha View PDF… Read more
Letter from the Editor
Vol. 22, No. 3, 2024 View PDF… Read more
In Memoriam—Louis A. Simpson
Vol. 20, No. 2, 2022 by Robert Korajczyk Louis A. Simpson December 23, 1936–January 8, 2022 View PDF… Read more
A Simple Model for the Expected Premium for Hedge Fund Lockups
Emanuel Derman Volume 5, Number 3, Third Quarter 2007 What excess return should a fund of funds expect to earn for investing in a hedge fund with an extended lockup? In this paper, we present a simple model for estimating the premium for long-term lockups. Because there is a demonstrated statistical persistence to the quality… Read more