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Does gamma survive the close?

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  • Willeboordse, Frederick H.

Abstract

Black–Scholes gamma is routinely treated as identifying convexity in daily option returns. We test this identification using 182 million intraday trade pairs and 0.16–2.6 million daily pairs per symbol across five underlyings (2020–2025). The correlation between empirical and theoretical gamma does not improve from intraday to daily horizons—it turns significantly negative (−0.25 to −0.47 across symbols). The negative correlation becomes more severe as vega exposure grows relative to gamma exposure, and is confirmed by regressions that place no model Greeks on the right-hand side. The evidence is most consistent with substantial vega contamination through negative spot–IV comovement (the leverage-effect channel): because Δσ is negatively correlated with ΔS, the vega component systematically loads into the gamma term. The 12ΓBS(ΔS)2 term can be computed but does not isolate convexity exposure.

Suggested Citation

  • Willeboordse, Frederick H., 2026. "Does gamma survive the close?," Finance Research Letters, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:finlet:v:106:y:2026:i:c:s1544612326008093
    DOI: 10.1016/j.frl.2026.110281
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    JEL classification:

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

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