Much has been discussed about the relationship between implied volatility (IV) and realized volatility, between IVs of different markets, asset classes, maturities, etc. However little has been discussed about the relationship between IV and dividend yield. The dividend yield is a financial ratio that indicates how much a company pays …

Skewness of returns is a statistical measure that captures the asymmetry of the distribution of an asset’s returns over a specified period. It is particularly important in risk management and option pricing, where the skewness of returns can affect the valuation of derivatives and the construction of portfolios. Reference  …

Stochastic volatility models, unlike constant volatility models, which assume a fixed level of volatility, allow volatility to change. These models, such as the Heston model, introduce an additional stochastic process to account for the variability in volatility, providing a more nuanced dynamics of the market. By incorporating factors like mean …

Realized volatility (RV) refers to the actual movement of an asset’s price over a specific period, typically measured using high-frequency data. Unlike implied volatility, which is derived from options prices and reflects market expectations, realized volatility is computed from historical price data and provides an empirical measure of how much …

The traditional option pricing model assumes that the market is frictionless. However, a body of research has developed theories that do not make this assumption. Reference utilizes the Stochastic Arbitrage (SA) approach to derive price bounds within which the admissible risk-neutral option prices, which are determined by using the …

Realized volatility refers to the actual volatility experienced by a financial asset over a specific period, typically computed using historical price data. By calculating realized volatility, investors and analysts can gain insights into the true level of price variability in the market, which can be valuable for risk management, portfolio …

A convertible bond is a type of security that can be converted into a predetermined number of shares of the issuer’s common stock at certain times during its life. Convertible bonds typically offer lower interest rates compared to regular bonds because they come with the potential for higher returns if …

A catastrophe bond, commonly referred to as a cat bond, is a type of insurance-linked security that allows insurers and reinsurers to transfer the risk associated with catastrophic events, such as natural disasters, to capital market investors. These bonds are typically issued by insurance companies or special purpose vehicles (SPVs) …

Zero DTE (0DTE) options, also known as “same-day expiration” options, are financial derivatives with expiration dates on the same day they are traded. These options offer traders the opportunity to profit from short-term price movements in the underlying asset. Due to their extremely short time frame, zero DTE options are …

Credit value adjustment (CVA) is a financial concept used to account for the potential loss in value of a portfolio due to counterparty credit risk. Essentially, CVA reflects the difference between the risk-free portfolio value and the true portfolio value, considering the possibility of counterparty default. It’s a critical component …