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

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  • Hilliard, Jitka

Abstract

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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  • Hilliard, Jitka, 2013. "Testing Greeks and price changes in the S&P 500 options and futures contract: A regression analysis," International Review of Financial Analysis, Elsevier, vol. 26(C), pages 51-58.
    • Handle: RePEc:eee:finana:v:26:y:2013:i:c:p:51-58
    DOI: 10.1016/j.irfa.2012.05.003
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    Cited by:

    1. Jitka Hilliard & Wei Li, 2014. "Volatilities implied by price changes in the S&P 500 options and futures contracts," Review of Quantitative Finance and Accounting, Springer, vol. 42(4), pages 599-626, May.

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