EconStor >
Goethe-Universität Frankfurt am Main >
Fachbereich Wirtschaftswissenschaften, Universität Frankfurt a. M. >
Working Paper Series: Finance and Accounting, Universität Frankfurt a. M. >

Please use this identifier to cite or link to this item:
Title:Can Tests Based on Option Hedging Errors Correctly Identify Volatility Risk Premia? PDF Logo
Authors:Branger, Nicole
Schlag, Christian
Issue Date:2004
Series/Report no.:Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting 136
Abstract:Tests for the existence and the sign of the volatility risk premium are often based on expected option hedging errors. When the hedge is performed under the ideal conditions of continuous trading and correct model specification, the sign of the premium is the same as the sign of the mean hedging error for a large class of stochastic volatility option pricing models. We show, however, that the problems of discrete trading and model mis-specification, which are necessarily present in any empirical study, may cause the standard test to yield unreliable results.
Subjects:Stochastic Volatility
Volatility Risk Premium
Discretization Error
Model Error
Document Type:Working Paper
Appears in Collections:Working Paper Series: Finance and Accounting, Universität Frankfurt a. M.

Files in This Item:
File Description SizeFormat
97.pdf224.25 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.