It only takes a few moments to hedge options

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Standard

It only takes a few moments to hedge options. / Barletta, Andrea; Santucci de Magistris, Paolo; Sloth, David.

I: Journal of Economic Dynamics and Control, Bind 100, 2019, s. 251-269.

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avisTidsskriftartikelForskningpeer review

Harvard

Barletta, A, Santucci de Magistris, P & Sloth, D 2019, 'It only takes a few moments to hedge options', Journal of Economic Dynamics and Control, bind 100, s. 251-269. https://doi.org/10.1016/j.jedc.2018.11.008

APA

Barletta, A., Santucci de Magistris, P., & Sloth, D. (2019). It only takes a few moments to hedge options. Journal of Economic Dynamics and Control, 100, 251-269. https://doi.org/10.1016/j.jedc.2018.11.008

CBE

Barletta A, Santucci de Magistris P, Sloth D. 2019. It only takes a few moments to hedge options. Journal of Economic Dynamics and Control. 100:251-269. https://doi.org/10.1016/j.jedc.2018.11.008

MLA

Barletta, Andrea, Paolo Santucci de Magistris og David Sloth. "It only takes a few moments to hedge options". Journal of Economic Dynamics and Control. 2019, 100. 251-269. https://doi.org/10.1016/j.jedc.2018.11.008

Vancouver

Barletta A, Santucci de Magistris P, Sloth D. It only takes a few moments to hedge options. Journal of Economic Dynamics and Control. 2019;100:251-269. https://doi.org/10.1016/j.jedc.2018.11.008

Author

Barletta, Andrea ; Santucci de Magistris, Paolo ; Sloth, David. / It only takes a few moments to hedge options. I: Journal of Economic Dynamics and Control. 2019 ; Bind 100. s. 251-269.

Bibtex

@article{3f7f39f7a9b64172844142e07c934852,
title = "It only takes a few moments to hedge options",
abstract = "We propose a novel non-structural method for hedging European options, relying on two model-independent results: First, under suitable regularity conditions, an option price can be disentangled into a linear combination of risk-neutral moments. Second, there exists an explicit approximate functional form linking the risk-neutral moments to the futures price of the underlying asset and the related variance swap contracts. We show that S&P 500 call prices are mainly explained by two factors that are related to level and volatility of the underlying index. We empirically compare the performance of two strategies where the vega exposure is adjusted either by a direct position in a variance swap contract or, indirectly, through an at-the-money call. While both strategies ensure effective immunization in periods of market turmoil, taking direct exposure on variance swaps is not optimal during extended periods of subdued volatility.",
keywords = "Option Greeks, Hedging, Risk-neutral moments, Variance-swap",
author = "Andrea Barletta and {Santucci de Magistris}, Paolo and David Sloth",
year = "2019",
doi = "10.1016/j.jedc.2018.11.008",
language = "English",
volume = "100",
pages = "251--269",
journal = "Journal of Economic Dynamics and Control",
issn = "0165-1889",
publisher = "Elsevier BV",

}

RIS

TY - JOUR

T1 - It only takes a few moments to hedge options

AU - Barletta, Andrea

AU - Santucci de Magistris, Paolo

AU - Sloth, David

PY - 2019

Y1 - 2019

N2 - We propose a novel non-structural method for hedging European options, relying on two model-independent results: First, under suitable regularity conditions, an option price can be disentangled into a linear combination of risk-neutral moments. Second, there exists an explicit approximate functional form linking the risk-neutral moments to the futures price of the underlying asset and the related variance swap contracts. We show that S&P 500 call prices are mainly explained by two factors that are related to level and volatility of the underlying index. We empirically compare the performance of two strategies where the vega exposure is adjusted either by a direct position in a variance swap contract or, indirectly, through an at-the-money call. While both strategies ensure effective immunization in periods of market turmoil, taking direct exposure on variance swaps is not optimal during extended periods of subdued volatility.

AB - We propose a novel non-structural method for hedging European options, relying on two model-independent results: First, under suitable regularity conditions, an option price can be disentangled into a linear combination of risk-neutral moments. Second, there exists an explicit approximate functional form linking the risk-neutral moments to the futures price of the underlying asset and the related variance swap contracts. We show that S&P 500 call prices are mainly explained by two factors that are related to level and volatility of the underlying index. We empirically compare the performance of two strategies where the vega exposure is adjusted either by a direct position in a variance swap contract or, indirectly, through an at-the-money call. While both strategies ensure effective immunization in periods of market turmoil, taking direct exposure on variance swaps is not optimal during extended periods of subdued volatility.

KW - Option Greeks

KW - Hedging

KW - Risk-neutral moments

KW - Variance-swap

U2 - 10.1016/j.jedc.2018.11.008

DO - 10.1016/j.jedc.2018.11.008

M3 - Journal article

VL - 100

SP - 251

EP - 269

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

ER -