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Hedging price changes in the S&P 500 options and futures contracts: the effect of different measures of implied volatility
by Jitka Hilliard
International Journal of Financial Markets and Derivatives (IJFMD), Vol. 3, No. 3, 2014


Abstract: We evaluate the performance of delta, delta-gamma and delta-vega hedges on the S&P 500 futures options with a particular focus on importance of daily volatility updating and the use of price-change implied volatility. Our findings indicate that the hedging performance of Black's model improves with daily updating of implied volatility and fitted price-change implied volatility for both calls and puts. Surprisingly, neither directly estimated implied price-change volatility nor introduction of additional traded option to the hedging portfolio seems to improve the hedging performance.

Online publication date: Tue, 04-Mar-2014


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