Helder Palaro's home page  References
Volatility Arbitrage References
1. Seminal work
 Black, F. and Scholes, M. (1973) The pricing of options and corporate liabilities, Journal of Political Economy, 81, 637639.
 Merton, R. (1973) The theory of rational option pricing, The Bell Journal of Economics and Management Science, 4 (1), 141183.
 Black, F. (1976) Studies of Stock Price Volatility Changes, Proceedings of the 1976 meetings of the American Statistical Association, 177181.
 Cox, J., Ross, S. and Rubinstein, M. (1979) Option pricing: a simplified approach, Journal of Financial Economics, 7, 229263.
 Engle, R. (1982) Autoregressive conditional heteroskedasticity with estimates of the variance of U.K. inflation, Econometrica, 50, 9871008.
 Heston, S. (1993) A Closedform solution for options with stochastic volatility, with applications to bond and currency options, Review of Financial Studies, 6, 323343.
2. Volatility stylized facts
2.1 Volatility clustering and mean reversion
2.2 Volatility risk premium
 Day, T. and Lewis, C. (1992) Stock market volatility and the information content of stock index options, Journal of Econometrics, 52, 267287.
 Canina, L. and Figlewski, S. (1993) The informational content of implied volatility, Review of Financial Studies, 6, 659681.
 Lamoreux, C. and Lastrapes, W. (1993) Forecasting return variance: toward an understanding of stochastic implied volatilities, Review of Financial Studies, 6, 293326.
 Fleming, J., Ostdiek, B. and Whaley, R.E. (1995) Predicting stock market volatility: a new measure, Journal of Future Markets, 15, 293326.
 Jackwerth, J., and Rubinstein, M. (1996) Recovering probability distributions from options prices, Journal of Finance, 51, 16111631.
 Fleming, J. (1998) The quality of market volatility forecasts implied by S&P 100 index option prices, Journal of Empirical Finance, 5, 317345.
 Christensen, B. and Prabhala, N. (1998) The relation between implied and realized volatility, Journal of Financial Economics, 50, 125150.
 Pan, J. (2002) The jumprisk premia implicit in options: evidence from an integrand timeseries study, Journal of Financial Economics, 63, 350.
 Simon, D. (2002) Implied volatility forecasts in the grains complex, Journal of Futures Markets, 22 (10), 959981.
 Bates, D. (2003) Empirical option pricing: a retrospection, Journal of Econometrics, 116, 387404.
 Poon, S. and Granger, C. (2003) Forecasting volatility in financial markets: A Review, Journal of Economic Literature, 41 (2), 478539.
 Manfredo, M. and Sanders, D. (2004) The Forecasting performance of implied volatility from live cattle options contracts: implications for agribusiness risk management, Agribusiness, 20 (2), 217230.
 Doran, J. and Ronn, E. (2005) The bias in BlackScholes/Black implied volatility: An analysis of equity and energy markets, Review of Derivative Research, 8 (3), 177198.
 Low, B. and Zhang, S. (2005) The volatility risk premium embedded in currency options, Journal of Financial and Quantitative Analysis, 40 (4), 803832.
 Chernov, M. (2007) On the role of risk premia in volatility forecasting, Journal of Business and Economic Statistics, 25 (4), 411426.
 Driessen, J. and Maenhout, P. (2007) An empirical portfolio perspective on option pricing anomalies, Review of Finance, 11 (4), 561603.
 Egelkraut, T., Garcia, P. and Sherrick, J. (2007) The term structure of implied forward volatility: recovery and informational content in the corn options market, American Journal of Agricultural Economics, 89, 111.
 McKenzie, A., Thomsen, M. and Phelan, J. (2007) How do you straddle hogs and pigs? Ask the Greeks, Applied Financial Economics, 17 (7), 511520.
 Fornari, F. (2008) Assessing the compensation for volatility risk implicit in interest rate derivatives, Working paper 859, European Central Bank.
 Bollerslev, T., Tauchen, G. and Zhou, H. (2009) Expected stock returns and variance risk premia, Review of Financial Studies, 22, 44634492.
 Broadie, M., Chernov, M. and Johannes, M. (2009) Understanding index option returns, Review of Financial Studies, 22 (11), 44934592.
 Carr, P. and Wu, L. (2009) Variance risk premiums, Review of Financial Studies, 22 (3), 13111341.
 Garland, N., Pedersen, L. and Poteshman, A. (2009) Demandbased option pricing, Review of Financial Studies, 22 (10), 42594299.
 Todorov, V. (2010) Variance risk premium dynamics: the role of jumps, Review of Financial Studies, 23, 345383.
 Trolle, A., Schwartz, E. (2010) Variance risk premia in energy commodities, Journal of Derivatives, 17 (3), 1532.
 Bollerslev, T., Gibson, M. and Zhou, H. (2011) Dynamic estimation of volatility risk premia and investor risk aversion from optionimplied and realized volatilities, Journal of Econometrics, 160, 235245.
 Brittain, L., Garcia, P. and Irwin, S. (2011) Live and feeder cattle options markets: return, risk and volatility forecasting, Journal of Agricultural and Resource Economics, 36 (1), 2847.
 Mueller, P., Vedolin, A. and Choi, H. (2012) Bond variance risk premia, Working paper, London School of Economics.
 Wang, Z., Fausti, S. and Qasmi, B. (2012) Variance risk premiums and predictive power of alternative forward variances in the corn market, Journal of Futures Markets, 32 (6), 587608.
 Buraschi, A., Trojani, F. and Vedolin, A. (2014) When uncertainty blows in the orchard comovement and equilibrium volatility risk premia, Journal of Finance, 69, 101137.
 Kelly, B., Pastor, L. and Veronesi, P. (2016) The Pricing of ShortTerm Market Risk: Evidence from Weekly Options, Journal of Finance, 71, 24172480.
2.3 Leverage effect
 Christie, A. (1982) The stochastic behavior of common stock variances: Value, leverage and interest rate effects, Journal of Financial Economics, 3, 407432.
 Schwert, W. (1989) Why does stock market volatility change over time?, Journal of Finance, 44, 11151153.
 Glosten, L., Jagannathan, R. and Runkle, D. (1993) On the relation between the expected value and the volatility of the nominal excess returns on stocks, Journal of Finance, 48, 11791801.
 Braun, P., Nelson, D. and Sunier, A. (1995) Good News, bad News, volatility and betas, Journal of Finance, 50, 15751603.
 Figlewski, S. and Wang, X. (2000) Is the "leverage effect" a leverage Effect?, Working paper FIN00037, New York University.
 Yu, J. (2005) On leverage in a stochastic volatility model, Journal of Econometrics, 127, 165178.
 Bandi, F. and Reno, R. (2012) Timevarying leverage effects, Journal of Econometrics, 169 (1), 94113.
 Yu, J. (2012) A semiparametric stochastic volatility model, Journal of Econometrics, 167 (2), 473482.
2.4 Volatility smile and implied probability distribution
 Rubinstein, M. (1994) Implied binomial trees, Journal of Finance, 49, 771818.
 Derman, E. and Kani, I. (1994) Riding on a smile, Risk, 7, 3239.
 Dupire, B. (1994) Pricing with a smile, Risk, 7, 1820.
 Derman, E., Kani, I. and Chriss, N. (1996) Implied trinomial trees of the volatility smile, Journal of Derivatives, 3, 722.
 Jackwerth, J., and Rubinstein, M. (1996) Recovering probability distributions from options prices, Journal of Finance, 51, 16111631.
 Das, S. and Sundaram, R. (1999) Of smiles and smirks: a termstructure perspective, Journal of Financial and Quantitative Analysis, 34, 211239.
 Skiadopoulos, G., Hodges, S. and Clewlow, L. (1999) The Dynamics of the S&P500 implied volatility surface, Review of Derivatives Research, 3 (1), 263282.
 BrittenJones, M. and Neuberger, A. (2000) Option prices, implied price processes, and stochastic volatility, Journal of Finance, 55 (2), 839866.
 Tompkins, R. (2001) Stock index future markets: Stochastic volatility models and smiles, The Journal of Futures Markets, 21, 4378.
 Alexander, C. (2001) Principles of skew, Risk, 14 (1), 2932.
 Coleman, T., Kim, Y., Li, Y. and Verma, A. (2001) Dynamic hedging with a deterministic local volatility function, Journal of Risk, 4 (1), 6389.
 Ederington, L. and Guan, W. (2002) Why are those options smiling?, Journal of Derivatives, 10 (2), 934.
 Jarrow, R., Li, H. and Zhao, F. (2007) Interest rate caps 'smile' too! But can the LIBOR market models capture it?, Journal of Finance, 62 (1), 345382.
 Deuskar, P., Gupta, A. and Subrahmanyam, M. (2008) The economic determinants of interest rate option smiles, Journal of Banking and Finance, 32 (5), 714728.
 Han, B. (2008) Investor sentiment and option prices, Review of Financial Studies, 21 (1), 387414.
 Bedendo, M. and Hodges, S. (2009) The dynamics of the volatility skew: A Kalman filter approach, Journal of Banking Finance, 33 (6), 11561165.
 Ederington, L. and Guan, W. (2013) The crosssectional relation between conditional heteroskedasticity, the implied volatility smile, and the variance risk premium, Journal of Banking and Finance, 37 (9), 33883400.
 Byun, S. and Kim, D. (2016) Gambling preference and individual equity option returns, Journal of Financial Economics, 122 (1), 155174.
3. Forecasting volatility
3.1 ARCH/GARCH and time series models
 Engle, R. (1982) Autoregressive conditional heteroskedasticity with estimates of the variance of U.K. inflation, Econometrica, 50, 9871008.
 Bollerslev, T. (1986) Generalized autoregressive conditional heteroskedasticity, Journal of Econometrics, 31, 307327.
 Nelson, D. (1991) Conditional heteroskedasticity in asset returns: a new approach, Econometrica, 59, 347370.
 Engle, R. and Ng, V. (1993) Measuring and testing the impact of news on volatility, Journal of Finance, 48, 17491778.
 Glosten, L., Jagannathan, R. and Runkle, D. (1993) On the relation between the expected value and the volatility of the nominal excess returns on stocks, Journal of Finance, 48, 11791801.
 Engle, R. (2001) GARCH 101: The use of ARCH/GARCH models in applied econometrics, Journal of Economic Perspectives, 15, 157168.
 Engle, R. (2002) Dynamic conditional correlation  a simple class of multivariate GARCH models, Journal of Business and Economic Statistics, 20, 339350.
 Engle, R. and Gallo, G. (2006) A multiple indicators model for volatility using intradaily data, Journal of Econometrics, 131, 327.
 Hansen, P., Huang, Z. and Shek, H. (2011) Dynamic conditional correlation  a simple class of multivariate GARCH models, Journal of Applied Econometrics, 27 (6), 877906.
 Dorion, C. (2016) Option valuation with macrofinance variables, Journal of Financial and Quantitative Analysis, 51 (4), 13591389.
3.2 Stochastic volatility models
 Hull, J. and White, A. (1987) The pricing of options on assets with stochastic volatilities, Journal of Finance, 42, 281300.
 Johnson, H. and Shanno, D. (1987) Option pricing when the variance is changing, Journal of Financial and Quantitative Analysis, 22, 143151.
 Wiggins, J. (1987) Option values under stochastic volatilities, Journal of Financial Economics, 19, 351372.
 Heston, S. (1993) A closedform solution for options with stochastic volatility, with applications to bond and currency options, Review of Financial Studies, 6, 323343.
 Bates, D. (1996) Jumps and stochastic volatility: exchange rate processes implicit in Deutsche Mark options, Review of Financial Studies, 9, 69107.
 Harvey, A. and Shephard, N. (1996) The estimation of an asymmetric stochastic volatility model for asset returns, Journal of Business and Economic Statistics, 14, 429434.
 Bakshi, G., Cao, C. and Chen, Z. (1997) Empirical performance of alternative option pricing models, Journal of Finance, 52 (5), 20032049.
 Bates, D. (2000) Post87 Crash Fears in S&P 500 Future Options, Journal of Econometrics, 94, 181238.
 Duffie, D., Singleton, K. and Pan, J. (2000) Transform analysis and asset pricing for affine jumpdiffusions, Econometrica, 68, 13431376.
 Heston, S., and Nandi, S. (2000) A closedform GARCH option valuation model, Review of Financial Studies, 13 (3), 585625.
 BarndorffNielsen, O. and Shephard, N. (2001) Nongaussian OrnsteinUhlenbeckbased models and some of their uses in financial economics, Journal of the Royal Statistical Society, Series B 64, 253280.
 Hagan, P., Kumar, D., Lesniewski, A. and Woodward, D. (2002) Managing smile risk, Wilmott Magazine, 84108.
 Eraker, B., Johannes, M. and Polson, N. (2003) The impact of jumps in volatility and returns, Journal of Finance, 58, 12691300.
 Gatheral, J. (2004) A parsimonious arbitragefree implied volatility parametrisation with application to the valuation of volatility derivatives, Global Derivatives & Risk Management 2004, Madrid.
 Broadie, M., Chernov, M. and Johannes, M. (2007) Model specification and risk premia: evidence from futures options, Journal of Finance, 62 (3), 14531490.
 SantaClara, P. and Yan, S. (2010) Crashes, volatility, and the equity premium: lessons from S&P500 options, Review of Economics and Statistics, 92 (2), 435451.
 Todorov, V. (2010) Variance risk premium dynamics: the role of jumps, Review of Financial Studies, 23, 345383.
 Yu, J. (2012) A semiparametric stochastic volatility model, Journal of Econometrics, 167 (2), 473482.
 Zhao, B. and Hodges, S. (2013) Parametric modelling of implied smile functions: a generalised SVI model, Review of Derivatives Research, 16 (1), 5377.
 Audrino, F. and Fengler, M. (2015) Are classical option pricing models consistent with observed option secondorder moments? Evidence from highfrequency data., Journal of Banking and Finance, 61, 4663.
 Eraker, B. and Wang, J. (2015) A NonLinear Dynamic Model of the Variance Risk Premium., Journal of Econometrics, 187 (2), 547556.
 Bandi, F. and Reno, R. (2016) Price and volatility cojumps, Journal of Financial Economics, 119 (1), 107146.
 Carr, P. and Wu, L. (2016) Analyzing volatility risk and risk premium in option contracts: A new theory., Journal of Financial Economics, 120 (1), 120.
 Kiesel, R. and Rahe, F. (2017) Option pricing under timevarying riskaversion with applications to risk forecasting, Journal of Banking and Finance, 76, 120138.
3.3 Rangebased estimators
 Garman, M. and Klass, M.(1980) On the estimation of security price volatilises from historical data, Journal of Business, 53, 6768.
 Parkinson, M. (1980) The extreme value method for estimating the variance of the rate of return, Journal of Business, 53, 6165.
 Rogers, L. and Satchell, S. (1991) Estimating variance from high, low, and closing prices, Annals of Applied Probability, 1, 504512.
 Alizadeh, S., Brandt, M. and Diebold, F. (2002) Rangebased estimation of stochastic volatility models, Journal of Finance, 57, 10471092.
3.4 Realized volatility models
 Zhou, B. (1996) Highfrequency data and volatility in foreignexchange rates,Journal of Business and Economic Statistics, 14, 4552.
 Andersen, T., Bollerslev, T. (1998) Answering the skeptics: Yes, standard volatility models do provide accurate forecasts,International Economic Review, 39 (4), 885905.
 Andersen, T., Bollerslev, T. (1998) Deutsche markdollar volatility: Intraday activity patterns, macroeconomic announcements, and longer run dependencies,Journal of Finance, 53 (1), 219265.
 Andersen, T., Bollerslev, T., Diebold, F. and Labys, P. (2001) The distribution of exchange rate volatility, Journal of the American Statistical Association, 96, 4255.
 Andersen, T., Bollerslev, T., Diebold, F. and Ebens, H. (2001) The distribution of realized stock return volatility, Journal of the American Statistical Association, 96, 4255.
 BarndorffNielsen, O. and Shephard, N. (2002) Econometrics analysis of realised volatility and it use in estimating stochastic volatility models, Journal of the Royal Statistical Society, Series B 64, 253280.
 Andersen, T., Bollerslev, T., Diebold, F. and Labys, P. (2003) Modeling and forecasting realised volatility, Econometrica, 71(2), 579625.
 BarndorffNielsen, O. and Shephard, N. (2004) Econometric analysis of realised covariation: high frequency covariance, regression and correlation in financial economics, Econometrica, 72, 885925.
 AitSahalia, Y., Mykland, A. and Zhang, L. (2005) A Tale of two time scales: Determining integrated volatility with noisy highfrequency data,Journal of American Statistical Association, 100 (472), 13941411.
 Hansen, P. and Lunde, A. (2006) Realized variance and market microstructure noise, Journal of Business and Economic Statistics, 24 (2), 127161.
 Zhang, L. (2006) Efficient estimation of stochastic volatility using noisy observations: a multiscale approach, Bernoulli, 12, 10191043.
 Ghysels, E., SantaClara, P. and Valkanov, R. (2006) Predicting volatility: getting the most out of return data sampled at different frequencies, Journal of Econometrics, 131, 5995.
 Andersen, T., Bollerslev, T. and Diebold, F. (2007) Roughing it up: Including jump components in the measurement, modelling, and forecasting of return volatility,
Review of Economics and Statistics, 89, 701720.
 Christensen, K. and Podolskij, M. (2007) Realized rangebased estimation of integrated variance, Journal of Econometrics, 141, 323349.
 Coen, A. and Racicot, F. (2007) Forecasting UHF financial data: Realized volatility versus UHFGARCH models, International Advances in Economic Research, 13 (2), 243244.
 Forsberg, L. and Ghysels, E. (2007) Why do absolute returns predict volatility so well, Journal of Financial Econometrics, 5, 3167.
 Bandi, F. and Russell, J. (2008) Microstructure noise, realised variance, and optimal sampling, Review of Economic Studies, 75, 339369.
 BarndorffNielsen, O., Hansen, P., Lunde, A. and Shephard, N. (2008) Designing realised kernels to measure the expost variation of equity prices in the presence of noise, Econometrica, 76, 14811536.
 Corsi, F. (2009) A simple approximate longmemory model of realized volatility, Journal of Financial Econometrics, 7 (2), 174196.
 Shephard, N. and Sheppard, K. (2010) Realising the future: forecasting with highfrequencybased volatility (HEAVY) models, Journal of Applied Econometrics, 25, 197231.
 BarndorffNielsen, O., Hansen, P., Lunde, A. and Shephard, N. (2011) Multivariate realised kernels: consistent positive semidefinite estimators of the covariation of equity prices with noise and nonsynchronous trading, Journal of Econometrics, 162, 149169.
 Patton, A. (2011) Databased ranking of realised volatility estimators, Journal of Econometrics, 161(2), 284303.
 Noureldin, D., Shephard, N. and Sheppard, K. (2012) Multivariate highfrequencybased volatility (HEAVY) models, Journal of Applied Econometrics, 27, 907933.
 Patton, A. (2015) Does Anything Beat 5Minute RV? A Comparison of Realized Measures Across Multiple Asset Classes, Journal of Econometrics, 187(1), 293311.
 Bollerslev, T., Patton, A. and Quaedvlieg, R. (2016) Exploiting the errors: A simple approach for improved volatility forecasting, Journal of Econometrics, 192 (1), 118.
3.5 Optionimplied forecast of realized volatility
 Canina, L. and Figlewski, S. (1993) The informational content of implied volatility, Review of Financial Studies, 6, 659681.
 Amin, K. and Morton, A. (1994) Implied volatility functions in arbitragefree term structure models, Journal of Financial Economics,35, 141180.
 Jorion, P. (1995) Predicting volatility in the foreign exchange market, 50 (2), 507528.
 Fleming, J. (1998) The quality of market volatility forecasts implied by S&P 100 index option prices, Journal of Empirical Finance, 5, 317345.
 Christiansen, C. and Hansen, C. (2002) Implied volatility of interest rate options: an empirical investigation of the market model, Review of Derivatives Research, 5 (1), 5179.
 Ferris, S., Kim, W. and Park, K. (2008) The informational quality of implied volatility and the volatility risk premium, Applied Economics Letter, 16, 5179.
 Taylor, S., Yadav, P. and Zhang, Y. (2010) The information content of implied volatilities and modelfree volatility expectations: Evidence from options written on individual stocks, Journal of Banking and Finance, 34 (4), 871881.
 Seo, S. and Kim, J. (2015) The information content of optionimplied information for volatility forecasting with investor sentiment, Journal of Banking and Finance, 50, 106120.
 Blau, B., Bowles, T. and Whitby, R. (2016) Gambling Preferences, Options Markets, and Volatility, Journal of Financial and Quantitative Analysis, 51 (2), 515540.
3.6 Comparison of volatility forecasting approaches
 Jorion, P. (1995) Predicting volatility in the foreign exchange market, 50 (2), 507528.
 Amin, K. and Ng, V. (1997) Inferring future volatility from the information in implied volatility in Eurodollar options: a new approach, Review of Financial Studies, 10 (2), 333367.
 Bollerslev, T. and Wright, J. (2001) Highfrequency data, frequency domain inference, and volatility forecasting, The Review of Economics and Statistics, 83 (4), 569602.
 Andersen, T., Bollerslev, T., Diebold, F. and Labys, P. (2003) Modeling and forecasting realised volatility, Econometrica, 71(2), 579625.
 Pong, S., Shackleton, M, Taylor, S. and Xu, X. (2004) Forecasting currency volatility: a comparison of implied volatilities and AR(FI)MA models, Journal of Banking and Finance, 28 (10), 25412563.
 Martens, M. and Zein, J. (2004) Predicting financial volatility: highfrequency timeseries forecasts visavis implied volatility, Journal of Futures Markets, 24 (11), 10051028.
 Hansen, P. and Lunde, A. (2005) A forecast comparison of volatility models: does anything beat a GARCH(1,1), Journal of Applied Econometrics, 20, 873889.
 Hansen, P. and Lunde, A. (2005) Consistent ranking of volatility models, Journal Econometrics, 131, 97121.
 Poon, S. and Granger, C. (2005) Practical issues in forecasting volatility, Financial Analysts Journal, 61 (1), 4556.
 Andersen, T., Bollerslev, T. and Diebold, F. (2007) Roughing it up: Including jump components in the measurement, modelling, and forecasting of return volatility, Review of Economics and Statistics, 89, 701720.
 Corsi, F. (2009) A simple approximate longmemory model of realized volatility, Journal of Financial Econometrics, 7 (2), 174196.
 Prokopczuk, M. and Wesen, S. (2014) The importance of the volatility risk premium for volatility forecasting, Journal of Banking and Finance, 40, 303320.
3.7 Forecasting implied volatility
 Harvey, C. and Whaley, R. (1992) Market volatility prediction and efficiency of the S&P 100 index option markets, Journal of Financial Economics, 31, 4373.
 Dumas, B., Fleming, J. and Whaley, R. (1998) Implied volatility functions: empirical tests, Journal of Finance, 53 (6), 20592106.
 Peña, I., Rubio, G. and Serna, G. (1999) Why do we smile? On the determinants of the implied volatility function, Journal of Banking and Finance, 23 (8), 11511179.
 Guo, D. (2000) Dynamic volatility trading strategies in the currency option market using stochastic volatility forecasts, Review of Derivatives Research, 4 (2), 133154.
 Brooks, C. and Oozeer, M. (2002) Modelling the implied volatility of options on Long Gilt futures, Journal of Business Finance and Accounting, 29, 111137.
 Gonçalves, S. and Guidolin, M. (2006) Predictable dynamics in the S&P500 index options implied volatility surface, Journal of Business, 79 (3), 15911636.
 Ahoniemi, K. (2006) Modeling and Forecasting Implied Volatility  an Econometric Analysis of the VIX Index, Discussion Paper 129, University of Helsinki.
 Konstandini, E., Skiadopoulos, G. and Tzagkaraki, E. (2007) Can the evolution of implied volatility be forecasted? Evidence from European and US implied volatility indices, Journal of Banking & Finance, 32 (11), 24012411.
4. Trading instruments
4.1 General
4.2 Currency options
 Garman, M. and Kohlhagen, S. (1983) Foreign currency option values, Journal of International Money and Finance, 2, 231237.
 Grabbe, J. (1983) The pricing of call and put options on foreign exchange, Journal of International Money and Finance, 2, 239253.
 Amin, K. and Jarrow, R. (1991) Pricing foreign currency options under stochastic interest rates, Journal of International Money and Finance, 10, 310329.
4.3 Futures options
 Black, F. (1976) Studies of Stock Price Volatility Changes, Proceedings of the 1976 meetings of the American Statistical Association, 177181.
 Hilliard, J. and Reis, R. (1998) Valuation of commodity futures and options under stochastic convenience yields, interest rates, and jump diffusions in the spot, Journal of Financial and Quantitative Analysis, 33 (1), 6186.
 Miltersen, K. and Schwartz, E. (1998) Pricing of options on commodity futures with stochastic term structures of convenience yields and interest rates, Journal of Financial and Quantitative Analysis, 33 (1), 3359.
4.4 Naked straddle/strangles/ratio spreads
 Chaput, J. and Ederington, L. (2005) Volatility trade design, The Journal of Futures Markets, 25 (3), 243279.
 Chaput, J. and Ederington, L. (2005) Ratio spreads, Proceedings of the Accounting and Finance Association of Australia and New Zealand Conference
4.5 Deltahedging with transaction costs
 Leland, H. (1985) Option pricing and replication with transaction costs, Journal of Finance, 40, 12831301.
 Hodges, S. and Neuberger, A. (1989) Optimal replication of contingent claims under transaction costs, Review of Futures Markets, 8, 222242.
 Dumas, B. and Luciano, E. (1991) An exact solution to a dynamic portfolio choice problem under transaction costs, Journal of Finance, 46, 577595.
 Bensaid, B., Lesne, J., Pages, H. and Scheinkman, J. (1992) Derivative asset pricing with transaction costs, Mathematical Finance, 2 (2), 6386.
 Boyle, P. and Vorst, T. (1992) Option replication in discrete time with transaction costs, Journal of Finance, 47, 271293.
 Davis, M., Panas, V. and Zariphopoulou, T. (1993) European option pricing with transaction costs, SIAM Journal on Control and Optimization, 31 (2), 470493.
 Edirisinghe, C., Naik, V. and Uppal, R. (1993) Optimal replication of options with transaction costs and trading restrictions, Journal of Financial and Quantitative Analysis, 28, 117138.
 Soner, H., Shreve, S. and Cvitanic, J. (1995) There is no nontrivial hedging portfolio for option pricing with transaction costs, Annals of applied probability, 5, 327355.
 Clewlow, L. and Hodges, S. (1997) Optimal deltahedging under transaction costs, Journal of Political Economy, 81 (3), 637654.
 Whalley, A. and Wilmott, P. (1997) An asymptotic analysis of an optimal hedging model for option pricing with transaction costs, Mathematical Finance, 7 (3), 307324.
 Perrakis, S. and Lefoll, J. (2000) Option pricing and replication with transaction costs and dividends, Journal of Economic Dynamics and Control, 24 (1112), 15271561.
 Zakamouline, V. (2006) European option pricing and hedging with both fixed and proportional transaction costs, Journal of Economic Dynamics and Control, 30 (1), 125.
 Whalley, A. (2011) Optimal partial hedging of options with small transaction costs, Journal of Futures Markets, 31, 855897.
 Hull, J. and White, A. (2017) Optimal Delta Hedging for Options, Journal of Banking and Finance, Forthcoming.
4.6 Options exercise
4.7 Volatility/Variance swaps and futures
 Carr, P. and Madan, D. (1998) Towards a theory of volatility trading, Volatility, Risk Publications, Robert Jarrow, ed., 417427.
 Demeterfi, K., Derman, E., Kamal, M. and Zou, J. (1999) More than you ever wanted to know about volatility swaps, Goldman Sachs, Quantitative Strategies Research Notes.
 Whaley, R. (2000) The investor fear gauge, Journal of Portfolio Management, 26, 1217.
 Carr, P. and Wu, L. (2006) A tale of two indices, Journal of Derivatives, Spring, 1329.
 Filipovic, D., Gourier, E. and Mancini, L. (2016) Quadratic variance swap models, Journal of Financial Economics, 119 (1), 4468
 Prokopczuk, M., Symeonidis, L. and Simen, C. (2017) Variance risk in commodity markets, Journal of Banking and Finance, 81, 136149
5. Volatility strategies
5.1 Longonly or shortonly
 Jackwerth, J. (2000) Recovering risk aversion from option prices and realised returns, The Review of Financial Studies, 13 (2), 433451.
 Coval, J. and Shumway, T. (2001) Expected option returns, Journal of Finance, 56, 9831009.
 Bakshi, G. and Kapadia, N. (2003) Deltahedged gains and the negative market volatility risk premium, Review of Financial Studies, 16, 527566.
 Doran, J. and Ronn, E. (2005) The bias in BlackScholes/Black implied volatility: An analysis of equity and energy markets, Review of Derivative Research, 8 (3), 177198.
 Low, B. and Zhang, S. (2005) The volatility risk premium embedded in currency options, Journal of Financial and Quantitative Analysis, 40 (4), 803832.
 Jones, C. (2006) A nonlinear factor analysis of S&P 500 index option returns, Journal of Finance, 41, 23252363.
 Hafner, R. and Wallmeier, M. (2007) Volatility as an asset class: European evidence, European Journal of Finance, 13, 621644.
 McKenzie, A., Thomsen, M. and Phelan, J. (2007) How do you straddle hogs and pigs? Ask the Greeks, Applied Financial Economics, 17 (7), 511520.
 Fornari, F.(2008) Assessing the compensation for volatility risk implicit in interest rate derivatives, Working paper 859, European Central Bank.
 Hafner, R. and Wallmeier, M. (2008) Optimal investments in volatility, Financial Markets and Portfolio Management, 22 (2), 147167.
 Broadie, M., Chernov, M. and Johannes, M. (2009) Understanding index option returns, Review of Financial Studies, 22 (11), 44934592.
 SantaClara, P. and Saretto, A. (2009) Option strategies: Good deals and margin calls, Journal of Financial Markets, 12, 391417.
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5.2 Covered call
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5.3 Directional and Relative value
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 Faias, J. and SantaClara, P. (2017) Optimal Option Portfolio Strategies: Deepening the Puzzle of Index Option Mispricing, Journal of Financial and Quantitative Analysis, 52 (1), 277303.
5.4 Predicting underlying price using volatility
 Corte, P., Ramadorai, T. and Sarno, L. (2016) Volatility risk premia and exchange rate predictability, The Journal of Financial Economics, 120 (1), 2140.
 Ge, L., Lin, T. and Pearson, N. (2016) Why does the option to stock volume ratio predict stock returns?, The Journal of Financial Economics, 120 (3), 601622.
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 London, J. and Zhou, H. (2017) Variance risk premiums and the forward premium puzzle, The Journal of Financial Economics, 124 (2), 415440.
Trendfollowing and Momentum References
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Email: helder@monaco.mc
Helder Palaro is an independent systematic trader, with interests in portfolio management, tactical asset allocation, volatility trading, trend following, and deep learning applied to finance.
Resume
 Independent Systematic Trader, Monaco (2013)  Research, development and execution of futures and options trading strategies.
Currently trading a volatility arbitrage strategy. The strategy aims to profit from the mispricing of volatility across options markets. It trades 18 CME and ICE futures options markets across several asset classes: equity, bonds, currencies, energy, metal and farm products, buying and selling volatility through shortterm options. The strategy is 100% systematic. The positions are taken according to a robustfitted statistical model which takes in consideration the volatility premium, volatility meanreversion and trendiness of the market. The strategy attempts to remain delta neutral by hedging the exposure with future contracts. Delta and gamma (vega) risk are strictly controlled intraday.
 Independent Quantitative Researcher, Malta (20112013) and Monaco (20132014)
Responsible for the research and development of the FundCreator risk management system, used by the AC Risk Parity family of funds, Aquila Capital, Hamburg. The system was unique in its capability to tightly control a large variety of risk parameters. The fund applied FundCreator on a daily basis to closely track its key risk parameters and to actively optimize the portfolio exposure, thereby ensuring a stable and predictable risk profile over time.
 Quantitative Researcher, AHL, Man Group, London UK (20072010)
Worked within the volatility arbitrage team. Created strategies for volatility trading using options across several asset classes and strategies for optimal deltahedging.
 PhD in Finance, Cass Business School, City University, London UK (20042007)
 Kat, H and Helder Palaro (2007) ReplicationBased Evaluation of Hedge Fund Performance.
 Kat, H and Helder Palaro (2006) Hedge Fund Indexation the Fundcreator Way: Efficient Hedge Fund Indexation without Hedge Funds.
 Kat, H and Helder Palaro (2006) Tell Me What You Want, What You Really, Really Want! An Exercise in TailorMade Synthetic Fund Creation.
 Kat, H and Helder Palaro (2006) Replication and Evaluation of Funds of Hedge Funds Returns, in Fund of Hedge Funds: Performance, Assessment, Diversification and Statistical Properties (eds: Greg Gregoriou), Chapter 3, Elsevier Press.
 Kat, H and Helder Palaro (2005) Who Needs Hedge Funds? A CopulaBased Approach to Hedge Fund Return Replication ,
 Kat, H and Helder Palaro (2005) Hedge Fund Returns: You Can Make Them Yourself! , Journal of Wealth Management 8, 6268.
 MSc in Statistics, State University of Campinas, Brazil (20022004)

 Hotta, L K; Lucas, E C and Helder Palaro (2008) Estimation of VaR using Copula and Extreme Value Theory, Multinational Finance Journal 12 (3/4), 205218.
 Hotta, L K and Helder Palaro (2006) Using Conditional Copulas to Estimate Value at Risk, Journal of Data Science 4 (1), 93115.
 BSc in Statistics, State University of Campinas, Brazil (19982001)
 Embedded Systems Programmer, PST Electronics, Campinas, Brazil (19961998) Designed Microchip PIC machinelanguage software for car alarms, power windows and other automotive products.
 Electronics Technician, Technical high school of Campinas, Brazil (19931996) Electronics, digital circuits, power engineering, telecommunications, control systems, signal processing, instrumentation.
Editorial Work
 Referee (2017), Communication in Statistics.
 Referee (2012), Brazilian Journal of Probability and Statistics.
 Referee (2012), Statistics and Probability Letters.
 Referee (2011), Communications in Statistics  Simulation and Computation.
 Referee (2010), The Journal of Risk.
 Referee (2009), Asia Pacific Management Review.
 Referee (2009), European Journal of Finance.
 Referee (2008), Brazilian Review of Finance.
 Referee (2008), International Journal of Business and Economics.
