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Risks
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Financial Derivatives and Their Applications
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Financial Derivatives and Their Applications

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: 31 October 2025 | Viewed by 4767

Special Issue Editor

Prof. Dr. Stylianos Perrakis

E-Mail Website
Guest Editor
Department of Finance, John Molson School of Business, Concordia University, Montréal, QC, Canada
Interests: credit derivatives; option pricing under transaction costs; market power in derivatives markets

Special Issue Information

Dear Colleagues,

Financial derivatives, namely equity, index, and exchange-traded fund (ETF) options, futures options, and credit default swaps, have become major components of trading in the financial markets, with the growth in their traded value exceeding by far in several cases that of their underlying instruments. Although there have been many theoretical and empirical studies for the valuation of these derivatives, there are still several ongoing debates about the inconsistencies of the theory with the empirical facts. There are also several understudied issues, such as the structure of the financial markets and the regulatory role of public policies. This Special Issue invites contributions that address these inconsistencies and omissions. These contributions can include but are not limited to, the following topics listed in the keywords part.

Prof. Dr. Stylianos Perrakis
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Risks is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1800 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • index options
  • equity options
  • credit derivatives
  • option values under frictionless equilibrium
  • pricing kernel
  • volatility and jump risks
  • option markets under transaction costs
  • stochastic dominance option pricing
  • risk arbitrage
  • market making
  • market power

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Published Papers (4 papers)

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Research

20 pages, 1104 KB  
Article
Smile-Consistent Spread Skew
by Dan Pirjol
Risks 2025, 13(8), 145; https://doi.org/10.3390/risks13080145 - 31 Jul 2025
Viewed by 275
Abstract
We study the shape of the Bachelier-implied volatility of a spread option on two assets following correlated local volatility models. This includes the limiting case of spread options on two correlated Black–Scholes (BS) assets. We give an analytical result for the at-the-money (ATM) [...] Read more.
We study the shape of the Bachelier-implied volatility of a spread option on two assets following correlated local volatility models. This includes the limiting case of spread options on two correlated Black–Scholes (BS) assets. We give an analytical result for the at-the-money (ATM) skew of the spread-implied volatility, which depends only on the components’ ATM volatilities and skews. We also compute the ATM convexity of the implied spread option for the case when the assets follow correlated BS models. The results are extracted from the short-maturity asymptotics for basket options obtained previously by Avellaneda, Boyer-Olson, Busca and Friz and, thus, become exact in the short-maturity limit. Numerical testing of the short-maturity analytical results under the Black–Scholes model and in a local volatility model show good agreement for strikes sufficiently close to the ATM point. Numerical experiments suggest that a linear approximation for the spread Bachelier volatility constructed from the ATM spread volatility and skew gives a good approximation for the spread volatility for highly correlated assets. Full article
(This article belongs to the Special Issue Financial Derivatives and Their Applications)
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15 pages, 1074 KB  
Article
Enhanced Calibration of Spread Option Simulation Pricing
by Shuming Zhang and Traian A. Pirvu
Risks 2025, 13(7), 140; https://doi.org/10.3390/risks13070140 - 21 Jul 2025
Viewed by 391
Abstract
This paper enhances the calibration procedure for pricing spread options with liquidity risk. The novelty is the use of Chebyshev interpolation to fit the prices.Numerical experiments reveal that the calibrated parameters are close to the ones obtained by a previous work. However, the [...] Read more.
This paper enhances the calibration procedure for pricing spread options with liquidity risk. The novelty is the use of Chebyshev interpolation to fit the prices.Numerical experiments reveal that the calibrated parameters are close to the ones obtained by a previous work. However, the fit obtained by this paper is superior as shown by our plots. Full article
(This article belongs to the Special Issue Financial Derivatives and Their Applications)
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21 pages, 4282 KB  
Article
Using Futures Prices and Analysts’ Forecasts to Estimate Agricultural Commodity Risk Premiums
by Gonzalo Cortazar, Hector Ortega and José Antonio Pérez
Risks 2025, 13(1), 9; https://doi.org/10.3390/risks13010009 - 10 Jan 2025
Cited by 1 | Viewed by 1974
Abstract
This paper presents a novel 5-factor model for agricultural commodity risk premiums, an approach not explored in previous research. The model is applied to the specific cases of corn, soybeans, and wheat. Calibration is achieved using a Kalman filter and maximum likelihood, with [...] Read more.
This paper presents a novel 5-factor model for agricultural commodity risk premiums, an approach not explored in previous research. The model is applied to the specific cases of corn, soybeans, and wheat. Calibration is achieved using a Kalman filter and maximum likelihood, with data from futures markets and analysts’ forecasts. Risk premiums are computed by comparing expected and futures prices. The model considers that risk premiums are not solely determined by contract maturity but also by the marketing crop years. These crop years, in turn, are influenced by the respective harvest periods, a crucial factor in the agricultural commodity market. Results show that risk premiums vary across commodities, with some exhibiting positive and others negative values. While maturity affects risk premiums’ size, sign, and shape, the crop year plays a critical role, especially in the case of wheat. As speculators in the financial markets demand a positive risk premium, its sign provides insights into whether they are buyers or sellers of futures for each crop year, maturity, and commodity. This research offers valuable insights into grain price behavior, highlighting their similarities and differences. These findings have significant practical implications for market participants seeking to refine their trading and risk management strategies and for future research on the industry structure for each crop. Moreover, this enhanced understanding of risk premiums can be directly applied in the finance and agricultural industries, improving decision-making processes. Full article
(This article belongs to the Special Issue Financial Derivatives and Their Applications)
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33 pages, 2096 KB  
Article
Funding Illiquidity Implied by S&P 500 Derivatives
by Benjamin Golez, Jens Jackwerth and Anna Slavutskaya
Risks 2024, 12(9), 149; https://doi.org/10.3390/risks12090149 - 18 Sep 2024
Viewed by 1549
Abstract
Based on the typical positions of S&P 500 option market makers, we derive a funding illiquidity measure from quoted prices of S&P 500 derivatives. Our measure significantly affects the returns of leveraged managed portfolios; hedge funds with negative exposure to changes in funding [...] Read more.
Based on the typical positions of S&P 500 option market makers, we derive a funding illiquidity measure from quoted prices of S&P 500 derivatives. Our measure significantly affects the returns of leveraged managed portfolios; hedge funds with negative exposure to changes in funding illiquidity earn high returns in normal times and low returns in crisis periods when funding liquidity deteriorates. The results are not driven by existing measures of funding illiquidity, market illiquidity, and proxies for tail risk. Our funding illiquidity measure also affects leveraged closed-end mutual funds and, to an extent, asset classes where leveraged investors are marginal investors. Full article
(This article belongs to the Special Issue Financial Derivatives and Their Applications)
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