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Hedging of American Equity Options: Do Call and Put Option Prices Always Move in the Direction as Predicted by the Movement in the Underlying Stock Price
Stockholm University, Faculty of Social Sciences, School of Business.
2001 (English)In: Journal of Multinational Financial Management, ISSN 1042-444X, E-ISSN 1873-1309, Vol. 11, 321-340 p.Article in journal (Refereed) Published
Abstract [en]

Using daily Swedish equity options data, an empirical analysis of some basic textbook properties for American options is performed. Several violations of these properties are found; call and put prices often move in the “wrong” direction compared to the stock price, call and put prices sometimes also increase or decrease simultaneously and option price changes are often larger than corresponding stock price changes. The hedging performance of the American options is evaluated by constructing delta-neutral and delta-vega-neutral portfolios. The empirical performance of these strategies is sometimes bad. Indeed, violation occurrences make hedging a rather risky business.

Place, publisher, year, edition, pages
2001. Vol. 11, 321-340 p.
National Category
Business Administration
Research subject
Business Administration
URN: urn:nbn:se:su:diva-43358DOI: 10.1016/51042-444x(01)00038-xOAI: diva2:356017
Available from: 2010-10-09 Created: 2010-10-09 Last updated: 2010-10-15Bibliographically approved

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Nordén, Lars
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ReferencesLink to record
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