Too Much Of A Good Thing? A Review Of Volatility Extensions In Black-Scholes

Since the seminal Black and Scholes model was introduced in the 1970s, researchers and practitioners have been continuously developing new models to enhance the original. All these models aim to ease one or more of the Black and Scholes assumptions, but this often results in a set of equations that is difficult if not impossible to use in practice. Nevertheless, in the wake of the financial crisis, an understanding of the various pricing models is essential to calm investors’ nerves. This paper reviews the models developed since Black and Scholes, giving the advantages and disadvantages of each type. It focuses on the main variable for which Black and Scholes gives results that differ widely from market data: implied volatility. This variable also forms the basis for the development of a new type of models, called “market models.

Understanding Foreign Exchange Option Returns: The Information Content Of Volatility

According to general asset pricing theory, options should reward their holders for the systematic risk they are bearing. In this paper, we study the returns of foreign exchange options. We find that, by sorting options according to the distance of their implied volatility from the historical volatility, we obtain portfolios with positive average monthly returns. These returns are not explained by standard aggregate risk factors, which suggest either that additional risk factors should be accounted for, or that investors behavior differs from the traditional paradigm of rational agents

Is Joint-Audit Regulation Likely to Mitigate the Audit Market Concentration in the Long Run? The French Experience

International audienc

Is Joint-Audit Regulation Likely to Mitigate the Audit Market Concentration in the Long Run? The French Experience

International audienc

Is Joint-Audit Regulation Likely to Mitigate the Audit Market Concentration in the Long Run? The French Experience

International audienc

Is Joint-Audit Regulation Likely to Mitigate the Audit Market Concentration in the Long Run? The French Experience

International audienc

Is Joint-Audit Regulation Likely to Mitigate the Audit Market Concentration in the Long Run? The French Experience

International audienc

How to better detect cases of financial reporting fraud: some new findings from earnings restatements

International audienc

How to better detect cases of financial reporting fraud: some new findings from earnings restatements

International audienc