This paper explores whether the high or low ESG rating of a company is related to level its implied tail risk, measured on basis derivative data by skewness and kurtosis. Previous research suggests that indeed connected some financial risk; however, often, only volatility used as risk measure. We examined relation between ratings volatility, explore in more depth looking into higher moments acc...

Black and Scholes (1973) implied volatilities tend to be systematically related to the option’s exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behavior to the fact that the Black/Scholes constant volatility assumption is violated in practice. These authors hypothesize that the volatility of the underlying asset’s return is a de...

We use cross-sectional information on the prices of G10 currency options to calibrate a non-Gaussian model of pricing kernel dynamics and construct estimates of conditional currency risk premia. We find that the mean historical returns to short dollar and carry factors (HMLFX ) are statistically indistinguishable from their option-implied counterparts, which are free from peso problems. Skewnes...

A well-known difficulty with solving Constraint Satisfaction Problems (CSPs) is that, while one formulation of a CSP may enable a solver to solve it quickly, a different formulation may take prohibitively long to solve. We demonstrate a system for automatically reformulating CSP solver models by combining the capabilities of machine learning and automated theorem proving with CSP systems. Our s...

Previously, few, if any, comparative tests of performance of Jackwerth’s (1997) generalized binomial tree (GBT) and Derman and Kani (1994) implied volatility tree (IVT) models were done. In this paper, we propose five different weight functions in GBT and test them empirically compared to both the Black-Scholes model and IVT. We use the daily settlement prices of FTSE-100 index options from Jan...