Third Quarter (2024)

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

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

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

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