File(s) not publicly available
Hedging surprises, jumps, and model misspecification: a risk management perspective on hedging S&P 500 options
This article provides comprehensive tests of alternative jump-diffusion models for the purpose of hedging S&P 500 options. We explicitly take into account the risk arising from price and variance jumps and assess the hedging performance by focusing on the ability of competing specifications to forecast hedging errors. To this end, we devise density prediction tests and find evidence that jumps are important features of S&P 500 index dynamics. All jump-diffusion models tested in this article show signs of misspecification, but the inclusion of jumps can improve the hedging performance and risk assessment, especially in two-instrument hedges.
History
Publication status
- Published
Journal
Review of FinanceISSN
1572-3097Publisher
Oxford University PressExternal DOI
Issue
4Volume
17Page range
1535-1569Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2013-09-09Usage metrics
Categories
No categories selectedKeywords
Licence
Exports
RefWorks
BibTeX
Ref. manager
Endnote
DataCite
NLM
DC