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Testing Greeks and price changes in the S&P 500 options and futures contract: A regression analysis

Listed author(s):
  • Hilliard, Jitka
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    We use a regression model to test observed price changes with Greeks as regressors. Greeks are computed using implied volatility, price-change implied volatility and historical volatility. We find sufficient evidence to reject model Greeks as unbiased responses to underlying price as well as sufficient evidence that the American version of binomial model results in biased estimates of price changes. We use options on the S&P 500 futures contracts and their underlying. We also evaluate the frequency of “wrong signs.” Call prices and their underlying move in the opposite direction almost 10 percent of the time.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1057521912000257
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    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 26 (2013)
    Issue (Month): C ()
    Pages: 51-58

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    Handle: RePEc:eee:finana:v:26:y:2013:i:c:p:51-58
    DOI: 10.1016/j.irfa.2012.05.003
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620166

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