Delta-hedged gains and risk-neutral moments

Sol Kim and Dahea Kim

Journal of Risk

Abstract: ABSTRACT We investigate the well-documented underperformance of delta-hedged option portfolios in relation to ex ante moments of the stock market's return distribution. Using a sample of Standard and Poor's 500 index options, we find that delta-hedged option gains decrease with ex ante volatility, in support of a negative volatility risk premium. Moreover, the delta-hedged gains are negatively associated with skewness and kurtosis of call options, but positively associated with the higher moments of put options. These results suggest that investors pay a premium for call options in anticipation of a positive jump, while they pay a premium for put options in anticipation of a negative jump.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk/2475510/delta ... risk-neutral-moments (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ4:2475510

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine ().