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Working Paper
Preference-free option pricing with path-dependent volatility: A closed-form approach
Nandi, Saikat; Heston, Steven (1998)
This paper shows how one can obtain a continuous-time preference-free option pricing model with a path-dependent volatility as the limit of a discrete-time GARCH model. In particular, the continuous-time model is the limit of a discrete-time GARCH model of Heston and Nandi (1997) that allows asymmetry between returns and volatility. For the continuous-time model, one can directly compute closed-form solutions for option prices using the formula of Heston (1993). Toward that purpose, we present the necessary mappings, based on Foster and Nelson (1994), such that one can approximate ...
FRB Atlanta Working Paper , Paper 98-20

Report
Equity Volatility Term Premia
Van Tassel, Peter (2018-09-01)
This paper estimates the term-structure of volatility risk premia for the stock market. Realized variance term premia are increasing in systematic risk and predict variance swap returns. Implied volatility term premia are decreasing in risk initially, but then increase at a lag, predicting VIX futures returns. By modeling the logarithm of realized variance, the paper derives a closed-form relationship between the prices of variance swaps and VIX futures. The model provides accurate pricing and highlights periods of dislocation between the index options and VIX futures markets. Term premia ...
Staff Reports , Paper 867

Journal Article
Consistent margin requirements: are they feasible?
Estrella, Arturo (1988-07)
Quarterly Review , Volume 13 , Issue Sum , Pages 61-79

Report
Option-implied probability distributions and currency excess returns
Malz, Allan M. (1997)
This paper describes a method of extracting the risk-neutral probability distribution of future exchange rates from option prices. In foreign exchange markets interbank option pricing conventions make possible reliable inferences about risk-neutral probability distributions with relatively little data. Moments drawn from risk-neutral exchange rate distribution are used to explore several issues related to the puzzle of excess returns in currency markets. Tests of the international capital asset pricing model using risk-neutral moments as explanatory variables indicate that option-based ...
Staff Reports , Paper 32

Journal Article
Margin requirements on equity instruments
Sofianos, George (1988-07)
Quarterly Review , Volume 13 , Issue Sum , Pages 47-60

Working Paper
Generalized put-call parity
Babbel, David F.; Eisenberg, Laurence K. (1991)
FRB Atlanta Working Paper , Paper 91-9

Report
Y2K options and the liquidity premium in Treasury bond markets
Sundaresan, Suresh; Wang, Zhenyu (2006)
Financial institutions around the world expected the millennium date change (Y2K) to cause an aggregate liquidity shortage. Responding to concerns about this liquidity shortage, the Federal Reserve Bank of New York auctioned Y2K options to primary dealers. The options gave the dealers the right to borrow from the Fed at a predetermined interest rate. The implied volatilities of Y2K options and the aggressiveness of demand for these instruments reveal that the Fed's action eased the fears of bond dealers, contributing to a drop in the liquidity premium of Treasury securities. Our analysis ...
Staff Reports , Paper 266

Working Paper
Efficiency in index options markets and trading in stock baskets
Tian, Yisong S.; Ackert, Lucy F. (1999)
Researchers have reported mispricing in index options markets. This study further examines the efficiency of the S&P 500 index options market by testing theoretical pricing relationships implied by no-arbitrage conditions. The effect of a traded stock basket, Standard and Poor's Depository Receipts (SPDRs), on the link between index and options markets is also examined. Pricing efficiency within options markets improves, and the evidence supports the hypothesis that a stock basket enhances the connection between markets. However, when transactions costs and short sales constraints are ...
FRB Atlanta Working Paper , Paper 99-5

Working Paper
The role of warrants in corporate reorganizations
Longhofer, Stanley D. (1995)
An argument that informational asymmetries explain why the original shareholders of some firms emerge from Chapter 11 bankruptcy proceedings with stock in the reorganized company, while others receive warrants. By proposing a reorganization plan in which they receive warrants, the original stockholders of a firm with good future prospects can signal their superior information to the creditors in a way that firms with poor prospects will not wish to mimic.
Working Papers (Old Series) , Paper 9512

Working Paper
Is Implied Correlation Worth Calculating? Evidence from Foreign Exchange Options and Historical Data
Lopez, Jose A.; Walter, Christian (2000-02-01)
Implied volatilities, as derived from option prices, have been shown to be useful in forecasting the subsequently observed volatility of the underlying financial variables. In this paper, we address the question of whether implied correlations, derived from options on the exchange rates in a currency trio, are useful in forecasting the observed correlations. We compare the forecast performance of the implied correlations from two currency trios with markedly different characteristics against correlation forecasts based on historical, time-series data. For the correlations in the USD/DEM/JPY ...
Working Paper Series , Paper 2000-02

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