Limits of Arbitrage and Primary Risk-Taking in Derivative Securities

IF 2.2 Q2 BUSINESS, FINANCE

Review of Asset Pricing Studies Pub Date : 2023-02-14 DOI:10.1093/rapstu/raad003

Meng Tian, Liuren Wu

引用次数: 0

Abstract

Abstract Classic option pricing theory values a derivative contract via dynamic delta hedging and treating the contract as redundant relative to the underlying security. Dynamic delta hedging proves highly effective in practice, but the remaining risk is still large because of the practical limits of arbitrage. Derivatives can play primary roles in risk allocation. This paper quantifies the percentage variance reduction of delta hedging on U.S. stock options, proposes a top-down return attribution framework to identify the remaining risk sources of the delta-hedged option investment, and constructs a statistical return factor model to explain the variations of the delta-hedged option returns. (JEL C13, C51, G12, G13)

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衍生证券的套利限制与主要风险承担

经典期权定价理论通过动态delta套期保值对衍生品合约进行定价，并将合约视为相对于标的证券的冗余。动态delta套期保值在实践中被证明是非常有效的，但由于套利的实际限制，剩余风险仍然很大。衍生品可以在风险分配中发挥主要作用。本文量化了delta套期保值在美国股票期权上的百分比方差缩减，提出了自上而下的收益归因框架来识别delta套期保值期权投资的剩余风险来源，并构建了统计收益因子模型来解释delta套期保值期权收益的变化。(凝胶c13, c51, g12, g13)

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Review of Asset Pricing Studies BUSINESS, FINANCE-

CiteScore

19.80

自引率

0.80%

发文量

期刊介绍： The Review of Asset Pricing Studies (RAPS) is a journal that aims to publish high-quality research in asset pricing. It evaluates papers based on their original contribution to the understanding of asset pricing. The topics covered in RAPS include theoretical and empirical models of asset prices and returns, empirical methodology, macro-finance, financial institutions and asset prices, information and liquidity in asset markets, behavioral investment studies, asset market structure and microstructure, risk analysis, hedge funds, mutual funds, alternative investments, and other related topics. Manuscripts submitted to RAPS must be exclusive to the journal and should not have been previously published. Starting in 2020, RAPS will publish three issues per year, owing to an increasing number of high-quality submissions. The journal is indexed in EconLit, Emerging Sources Citation IndexTM, RePEc (Research Papers in Economics), and Scopus.