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:

Full metadata record

DC FieldValueLanguage
dc.contributor.authorBranger, Nicoleen_US
dc.contributor.authorSchlag, Christianen_US
dc.description.abstractWhen options are traded, one can use their prices and price changes to draw inference about the set of risk factors and their risk premia. We analyze tests for the existence and the sign of the market prices of jump risk that are based on option hedging errors. We derive a closed-form solution for the option hedging error and its expecta- tion in a stochastic jump model under continuous trading and correct model specification. Jump risk is structurally different from, e.g., stochastic volatility: there is one market price of risk for each jump size (and not just the market price of jump risk). Thus, the expected hedging error cannot identify the exact structure of the compensation for jump risk. Furthermore, we derive closed form solutions for the expected option hedging error under discrete trading and model mis-specification. Compared to the ideal case, the sign of the expected hedging error can change, so that empirical tests based on simplifying assumptions about trading frequency and the model may lead to incorrect conclusions.en_US
dc.relation.ispartofseriesWorking paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting 140en_US
dc.subject.keywordStochastic jumpsen_US
dc.subject.keywordmarket prices of risken_US
dc.subject.keyworddiscrete tradingen_US
dc.subject.keywordmodel mis-specificationen_US
dc.subject.keywordhedging erroren_US
dc.subject.stwStochastischer Prozessen_US
dc.titleIs Jump Risk Priced? What We Can (and Cannot) Learn From Option Hedging Errorsen_US
dc.typeWorking Paperen_US
Appears in Collections:Working Paper Series: Finance and Accounting, Universität Frankfurt a. M.

Files in This Item:
File Description SizeFormat
686.pdf420.59 kBAdobe PDF
No. of Downloads: Counter Stats
Show simple item record
Download bibliographical data as: BibTeX

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