The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Beyond Basis Basics: Liquidity Demand and Deviations from the Law of One Price
Published: 12/25/2022, Volume: 78, Issue: 1 | DOI: 10.1111/jofi.13198 | Cited by: 22
TODD M. HAZELKORN, TOBIAS J. MOSKOWITZ, KAUSHIK VASUDEVAN
Deviations from the law of one price between futures and spot prices—the futures‐cash basis—capture information about liquidity demand for equity market exposure in global markets. We show that the basis comoves with dealer and investor futures positions, is contemporaneously positively correlated with futures and spot market returns, and negatively predicts futures and spot returns. These findings are consistent with the futures‐cash basis reflecting liquidity demand that is common to futures and cash equity markets. We find persistent supply‐demand imbalances for equity index exposure reflected in the basis, giving rise to an annual premium of 5% to 6%.
Jump Diffusion Option Valuation in Discrete Time
Published: 12/1993, Volume: 48, Issue: 5 | DOI: 10.1111/j.1540-6261.1993.tb05130.x | Cited by: 252
KAUSHIK I. AMIN
We develop a simple, discrete time model to value options when the underlying process follows a jump diffusion process. Multivariate jumps are superimposed on the binomial model of Cox, Ross, and Rubinstein (1979) to obtain a model with a limiting jump diffusion process. This model incorporates the early exercise feature of American options as well as arbitrary jump distributions. It yields an efficient computational procedure that can be implemented in practice. As an application of the model, we illustrate some characteristics of the early exercise boundary of American options with certain types of jump distributions.
Option Valuation with Systematic Stochastic Volatility
Published: 7/1993, Volume: 48, Issue: 3 | DOI: 10.1111/j.1540-6261.1993.tb04023.x | Cited by: 170
KAUSHIK I. AMIN, VICTOR K. NG
We use an extension of the equilibrium framework of Rubinstein (1976) and Brennan (1979) to derive an option valuation formula when the stock return volatility is both stochastic and systematic. Our formula incorporates a stochastic volatility process as well as a stochastic interest rate process in the valuation of options. If the “mean,” volatility, and “covariance” processes for the stock return and the consumption growth are predictable, our option valuation formula can be written in “preference‐free” form. Further, many popular option valuation formulae in the literature can be written as special cases of our general formula.