Research about equity index options has shown that option prices systematically violate rational pricing bounds for the risk-averse representative investor. These results raise the question of whether profitable trading possibilities exist in this market. Standard portfolio optimization does not apply because of the large bid-ask spreads and low quote sizes in this market. Motivated by these complications, a system of linear inequalities is developed that completely characterizes all risk arbitrage opportunities in the presence of transaction costs and portfolio restrictions. The practical use of this system is illustrated with an application to front-month S&P500 stock index options. Small-scale portfolios seem to produce surprisingly large abnormal returns out of sample; outperformance, however, seems elusive for institutional investors because of the limited quote size, possibly reflecting data limitations.

This paper discusses the PCS Catastrophe Insurance Option Contracts, providing empirical support on the level of correspondence between real quotes and standard financial theory. The highest possible precision is incorporated since the real quotes are perfectly synchronized and the bid-ask spread is always considered. A static setting is assumed and the main topics of arbitrage, hedging, and portfolio choice are involved in the analysis. Three significant conclusions are reached. First, the catastrophe derivatives may often be priced by arbitrage methods, and the paper provides some examples of practical strategies that were available in the market. Second, hedging arguments also yield adequate criteria to price the derivatives, and some real examples are provided as well. Third, in a variance aversion context many agents could be interested in selling derivatives to invest the money in stocks and bonds. These strategies show a suitable level in the variance for any desired expected return. Furthermore, the methodology here applied seems to be quite general and may be useful to price other derivative securities. Simple assumptions on the underlying asset behavior are the only required conditions.

This agenda outlines possible routes to pursue an explanation of vertical gender segregation. The analysis emphasizes the expanding opportunities brought about by a combination of Big Data and public policies, like gender quotas, and uncovers important challenges for which possible solutions are offered.Experimental work is likely to remain very useful in the pursuit of answers to this asymmetric gender presence.

In this paper, the set of all second-order stochastic dominance (SSD)-efficient portfolios is characterized by using a series of mixed-integer linear constraints. Our derivation employs a combination of the first-order conditions of the utility maximization problem together with a judicious use of binary variables. This result opens the door to the formulation of optimizations whose objective function is free to select a particular portfolio out of the entire SSD-efficient set. This paper was accepted by Jerome Detemple, finance.

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Several authors have introduced different ways to measure integration between financial markets. Most of them are derived from the basic assumptions about asset prices, like the Law of One Price or the absence of arbitrage opportunities. Two perfectly integrated markets must give identical prices to identical final payoffs, and a vector of positive discount factors, common to both markets, must exist. If these properties do not hold, the degree to which they are violated can be defined and considered as a measure of integration. The present paper empirically tests integration measures in the Spanish financial markets. Furthermore, the integration measures are operationalized to analyze the presence of cross‐market arbitrage without previously specifying the exact nature of the arbitrage strategy to be used. When the absence of arbitrage holds, several interesting variables are obtained, for instance, state prices or risk‐neutral probabilities. When this absence fails, explicit cross‐market arbitrage portfolios are provided. The results of the test yield some evidence about market efficiency and integration outside the United States, and they are surprising for several reasons. First of all, arbitrage opportunities do sometimes appear, and the bid–ask spread and transaction costs seem to be unable to prevent arbitrage profits. Furthermore, the criticisms that are usually raised when empirical papers show the existence of arbitrage opportunities do not apply here because we work with perfectly synchronized high frequency data. On the other hand, different integration measures show a similar evolution along the tested period, although these measures give different information about the markets’ efficiency and integration, and they do not necessarily have to be related. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20: 321–344, 2000

Bernardo and Ledoit (2000) develop a very appealing framework to compute pricing bounds based on what they call gain-loss ratio. Their method has many advantages and very interesting properties and so far one important drawback: the complexity of the numerical computation of the pricing bounds. In this note we provide a simple procedure for their computation which only entails solving a linear optimization program.

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