IDEAS home Printed from https://ideas.repec.org/a/kap/revdev/v11y2008i3p205-244.html
   My bibliography  Save this article

The cross-section of average delta-hedge option returns under stochastic volatility

Author

Abstract

No abstract is available for this item.

Suggested Citation

  • Alfredo Ibáñez, 2008. "The cross-section of average delta-hedge option returns under stochastic volatility," Review of Derivatives Research, Springer, vol. 11(3), pages 205-244, October.
    • Handle: RePEc:kap:revdev:v:11:y:2008:i:3:p:205-244
    DOI: 10.1007/s11147-009-9030-9
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11147-009-9030-9
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11147-009-9030-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pan, Jun, 2002. "The jump-risk premia implicit in options: evidence from an integrated time-series study," Journal of Financial Economics, Elsevier, vol. 63(1), pages 3-50, January.
    2. Gurdip Bakshi & Nikunj Kapadia, 2003. "Delta-Hedged Gains and the Negative Market Volatility Risk Premium," The Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 527-566.
    3. Santa-Clara, Pedro & Saretto, Alessio, 2009. "Option strategies: Good deals and margin calls," Journal of Financial Markets, Elsevier, vol. 12(3), pages 391-417, August.
    4. Joshua D. Coval & Tyler Shumway, 2001. "Expected Option Returns," Journal of Finance, American Finance Association, vol. 56(3), pages 983-1009, June.
    5. Peter Carr & Liuren Wu, 2003. "What Type of Process Underlies Options? A Simple Robust Test," Journal of Finance, American Finance Association, vol. 58(6), pages 2581-2610, December.
    6. Merton, Robert C, 1998. "Applications of Option-Pricing Theory: Twenty-Five Years Later," American Economic Review, American Economic Association, vol. 88(3), pages 323-349, June.
    7. Nicolae Garleanu & Lasse Heje Pedersen & Allen M. Poteshman, 2009. "Demand-Based Option Pricing," The Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4259-4299, October.
    8. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, February.
    9. Luca Benzoni & Pierre Collin-Dufresne & Robert S. Goldstein, 2005. "Can Standard Preferences Explain the Prices of out of the Money S&P 500 Put Options," NBER Working Papers 11861, National Bureau of Economic Research, Inc.
    10. Naik, Vasanttilak & Lee, Moon, 1990. "General Equilibrium Pricing of Options on the Market Portfolio with Discontinuous Returns," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 493-521.
    11. George M. Constantinides & Jens Carsten Jackwerth & Stylianos Perrakis, 2009. "Mispricing of S&P 500 Index Options," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1247-1277.
    12. T. Clifton Green & Stephen Figlewski, 1999. "Market Risk and Model Risk for a Financial Institution Writing Options," Journal of Finance, American Finance Association, vol. 54(4), pages 1465-1499, August.
    13. Mark Broadie & Mikhail Chernov & Michael Johannes, 2009. "Understanding Index Option Returns," The Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4493-4529, November.
    14. Peter Christoffersen & Steven Heston & Kris Jacobs, 2009. "The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well," Management Science, INFORMS, vol. 55(12), pages 1914-1932, December.
    15. Branger, Nicole & Schlag, Christian, 2008. "Can Tests Based on Option Hedging Errors Correctly Identify Volatility Risk Premia?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(4), pages 1055-1090, December.
    16. Darrell Duffie & Jun Pan & Kenneth Singleton, 2000. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," Econometrica, Econometric Society, vol. 68(6), pages 1343-1376, November.
    17. Ait-Sahalia, Yacine & Wang, Yubo & Yared, Francis, 2001. "Do option markets correctly price the probabilities of movement of the underlying asset?," Journal of Econometrics, Elsevier, vol. 102(1), pages 67-110, May.
    18. Liu, Jun & Pan, Jun, 2003. "Dynamic derivative strategies," Journal of Financial Economics, Elsevier, vol. 69(3), pages 401-430, September.
    19. Buraschi, Andrea & Jackwerth, Jens, 2001. "The Price of a Smile: Hedging and Spanning in Option Markets," The Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 495-527.
    20. Joost Driessen & Pascal J. Maenhout & Grigory Vilkov, 2009. "The Price of Correlation Risk: Evidence from Equity Options," Journal of Finance, American Finance Association, vol. 64(3), pages 1377-1406, June.
    21. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, June.
    22. George J. Jiang & Yisong S. Tian, 2005. "The Model-Free Implied Volatility and Its Information Content," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1305-1342.
    23. Low, Buen Sin & Zhang, Shaojun, 2005. "The Volatility Risk Premium Embedded in Currency Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(4), pages 803-832, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Santa-Clara, Pedro & Saretto, Alessio, 2009. "Option strategies: Good deals and margin calls," Journal of Financial Markets, Elsevier, vol. 12(3), pages 391-417, August.
    2. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    3. Carverhill, Andrew & Luo, Dan, 2023. "A Bayesian analysis of time-varying jump risk in S&P 500 returns and options," Journal of Financial Markets, Elsevier, vol. 64(C).
    4. Byun, Suk Joon & Jeon, Byoung Hyun & Min, Byungsun & Yoon, Sun-Joong, 2015. "The role of the variance premium in Jump-GARCH option pricing models," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 38-56.
    5. Bakshi, Gurdip & Madan, Dilip & Panayotov, George, 2010. "Returns of claims on the upside and the viability of U-shaped pricing kernels," Journal of Financial Economics, Elsevier, vol. 97(1), pages 130-154, July.
    6. Sang Byung Seo & Jessica A. Wachter, 2019. "Option Prices in a Model with Stochastic Disaster Risk," Management Science, INFORMS, vol. 65(8), pages 3449-3469, August.
    7. Christoffersen, Peter & Jacobs, Kris & Chang, Bo Young, 2013. "Forecasting with Option-Implied Information," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 581-656, Elsevier.
    8. Du Du & Dan Luo, 2019. "The Pricing of Jump Propagation: Evidence from Spot and Options Markets," Management Science, INFORMS, vol. 67(5), pages 2360-2387, May.
    9. Benzoni, Luca & Collin-Dufresne, Pierre & Goldstein, Robert S., 2011. "Explaining asset pricing puzzles associated with the 1987 market crash," Journal of Financial Economics, Elsevier, vol. 101(3), pages 552-573, September.
    10. Mi‐Hsiu Chiang & Hsin‐Yu Chiu & Robin K. Chou, 2021. "Relevance of the disposition effect on the options market: New evidence," Financial Management, Financial Management Association International, vol. 50(1), pages 75-106, March.
    11. Shaliastovich, Ivan, 2015. "Learning, confidence, and option prices," Journal of Econometrics, Elsevier, vol. 187(1), pages 18-42.
    12. Branger, Nicole & Muck, Matthias & Seifried, Frank Thomas & Weisheit, Stefan, 2017. "Optimal portfolios when variances and covariances can jump," Journal of Economic Dynamics and Control, Elsevier, vol. 85(C), pages 59-89.
    13. Chen, Chin-Ho, 2019. "Downside jump risk and the levels of futures-cash basis," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    14. Hong, Hui & Sung, Hao-Chang & Yang, Jingjing, 2018. "On profitability of volatility trading on S&P 500 equity index options: The role of trading frictions," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 295-307.
    15. Liu, Jun & Pan, Jun, 2003. "Dynamic derivative strategies," Journal of Financial Economics, Elsevier, vol. 69(3), pages 401-430, September.
    16. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross‐Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, February.
    17. Calvet, Laurent E. & Fisher, Adlai J., 2008. "Multifrequency jump-diffusions: An equilibrium approach," Journal of Mathematical Economics, Elsevier, vol. 44(2), pages 207-226, January.
    18. Neumann, Maximilian & Prokopczuk, Marcel & Wese Simen, Chardin, 2016. "Jump and variance risk premia in the S&P 500," Journal of Banking & Finance, Elsevier, vol. 69(C), pages 72-83.
    19. Hui Guo & Christopher J. Neely & Jason Higbee, 2008. "Foreign Exchange Volatility Is Priced in Equities," Financial Management, Financial Management Association International, vol. 37(4), pages 769-790, December.
    20. Bondarenko, Oleg, 2014. "Variance trading and market price of variance risk," Journal of Econometrics, Elsevier, vol. 180(1), pages 81-97.

    More about this item

    Keywords

    Average delta-hedged option returns; Stochastic volatility; Volatility risk premium; Option returns and option prices; Incomplete markets; G11; G13;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:revdev:v:11:y:2008:i:3:p:205-244. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.