Can Tests Based on Option Hedging Errors Correctly Identify Volatility Risk Premia?
Branger Nicole, Schlag Christian
Zusammenfassung
Tests for the existence and the sign of the volatility risk premium are often based on expectedoption hedging errors. When the hedge is performed under the ideal conditions ofcontinuous trading and correct model specification, the sign of the premium is the sameas the sign of the mean hedging error for a large class of models. We show that discretetrading and model misspecification may cause the standard test to yield unreliable results.In particular, ignoring jump risk premia can lead to incorrect conclusions. We also showthat delta-gamma hedges do not increase the reliability of the test.
Publikationstyp
Forschungsartikel (Zeitschrift)
Begutachtet
Ja
Publikationsstatus
Veröffentlicht
Jahr
2008
Fachzeitschrift
Journal of Financial and Quantitative Analysis
Band
43
Ausgabe
4
Erste Seite
1055
Letzte Seite
1090
Sprache
Englisch
ISSN
0022-1090
DOI
Gesamter Text