Journal of Financial Economics Vol. 8 No. 3 1980
Discretely adjusted option hedges
Abstract
This paper analyses the distribution of returns on a hedged portfolio, consisting of a European call option and its associated stock, when the portfolio is rebalanced at discrete time intervals. Under the assumptions of the Black-Scholes model this distribution is particularly skew. In tests of the average return on a hedged portfolio this skewness leads to biased t-statistics. The paper explores the nature and extent of this bias and suggests procedures for overcoming it. Other aspects of discrete hedging are also discussed.
- DOI
- 10.1016/0304-405x(80)90003-3
- Volume
- 8
- Issue
- 3
- Pages
- 259-282
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref