Backtesting Dispersion Trading Chapter I

Download PDF Introduction There is empirical evidence that index options, especially puts, are overpriced relative to individual stock options. Dispersion trading is a strategy aimed to capitalize from this mispricing. The aim of this article is to explore whether dispersion trading can still generate positive returns, but to generate a Read more…

Half a Century of Black-Scholes: Option Pricing Models from Inception to Contemporary Innovations

Download PDF Introduction 50 years ago, the financial industry changed forever with the introduction of the Black-Scholes model for options pricing. However, the story started much earlier with less sophisticated approaches and has evolved significantly over the last century, encompassing notable frameworks such as the binomial tree in discrete time, Read more…

A Primer on 0DTE Options

Download PDF What are 0DTEs? Zero Days to Expiry (0DTE) options are options that expire on the same day they are purchased; this gives them an unusually high amount of leverage that is hard to find anywhere else. Due to theta, the extrinsic value of an option declines exponentially as Read more…

The Emerging Markets Dark Tunnel

Download PDF Introduction Emerging Markets Debt is making a comeback in Google search bars. The term refers to sovereign bonds issued by less-developed countries. In fact, the words “debt” and “emerging” are closely linked: debt permits a country to raise fresh capital and with that to grow towards standards reflected Read more…

Ex-Dividend Arbitrage

Download PDF Introduction This article will ostensibly be a distillation and discussion of the paper ‘Ex-Dividend Arbitrage in Option Markets’ by Hao, Kalay and Mayhew. [1] They find that a significant fraction of American call option holders do not behave in line with rational exercise policy regarding dividends, leaving money Read more…

Straddling outside and into earnings

Download PDF Introduction An ATM equity long straddle position is delta neutral. If systematic risk is the only factor predicting expected returns, a delta neutral strategy should have an expected return equal to the risk-free rate. In this article we will review academic literature suggesting that not only is this Read more…

Your Guide to the Land of Higher Order Greeks

“Option Greeks” is the common name for the sensitivities in price of options or, in general, of derivatives and portfolios of derivatives, with respect to different factors, such as spot price of the underlying, implied volatility, risk-free interest rate, etc. Each Greek represents the ratio between the change in price Read more…

The Black-Scholes Model in VBA

The aim of this article is to walk the reader through the implementation of the Black-Scholes model for option pricing in VBA. Firstly, we’ll recap the theoretical framework. Secondly, we’ll provide the code to put the theory into practice and show some basic (but hopefully relevant) applications. The Theory – Read more…

Volatility Play on the Hidden Gold-Yuan Peg

Reserve Currencies A reserve currency is defined as a currency held by government for international payment purposes. The most important usages are: Repay back international debt (generally issued in reserve currencies) Defend the domestic currency against depreciation Improve the government credit rating Reserve currencies are many. The IMF chooses the Read more…