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

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  • 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
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    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
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    10. 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, March.
    11. 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.
    12. 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.
    13. Liu, Jun & Pan, Jun, 2003. "Dynamic derivative strategies," Journal of Financial Economics, Elsevier, vol. 69(3), pages 401-430, September.
    14. 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.
    15. 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.
    16. 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.
    17. Joshua D. Coval & Tyler Shumway, 2001. "Expected Option Returns," Journal of Finance, American Finance Association, vol. 56(3), pages 983-1009, June.
    18. 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.
    19. 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.
    20. 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.
    21. 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.
    22. 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.
    23. 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.
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    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

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