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Option Pricing, Time-Varying Volatility, and Tail Risk

Author

Listed:
  • Michael Johannes

    (Columbia Business School, Columbia University, New York, NY, USA)

  • Andreas Kaeck

    (University of Sussex Business School, Sussex, United Kingdom)

  • Neel Shah

    (Columbia Business School, Columbia University, New York, NY, USA)

  • Daniel Guetta

    (Columbia Business School, Columbia University, New York, NY, USA)

Abstract

This article surveys recent developments and important issues in option pricing with a particular focus on time-varying volatility and tail risks. We start by briefly reviewing the most important market events, financial innovations, and theoretical developments from the 1970s to the 1990s and then focus on a more detailed review of the current state of knowledge with a discussion of open questions.

Suggested Citation

  • Michael Johannes & Andreas Kaeck & Neel Shah & Daniel Guetta, 2026. "Option Pricing, Time-Varying Volatility, and Tail Risk," Annual Review of Financial Economics, Annual Reviews, vol. 18(1), pages 409-433, November.
    • Handle: RePEc:anr:refeco:v:18:y:2026:p:409-433
    DOI: 10.1146/annurev-financial-111524-011258
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    Keywords

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    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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