Evidence on Delta Hedging and Implied Volatilities for the Black-Scholes, Gamma and Weibull Option-Pricing Models

Posted: 15 Jun 2004

See all articles by Robert Savickas

Robert Savickas

George Washington University - School of Business - Department of Finance

Abstract

Modifying the distributional assumptions of the Black-Scholes model is one way to accommodate the skewness of underlying asset returns. Simple models based on the compensated gamma and Weibull distributions of asset prices have been shown to produce some improvements in option pricing. To evaluate these assertions, I construct and compare delta hedges of all S&P 500 options traded on the Chicago Board Options Exchange between September 2001 and October 2003 for the Weibull, the Black-Scholes, and the gamma models. I also compare implied volatilities and their smiles (i.e., non-linearities) among the three models. None of the three models improves over the others as far as delta hedging is concerned. Volatilities implied by all three models exhibit statistically significant smiles.

Suggested Citation

Savickas, Robert, Evidence on Delta Hedging and Implied Volatilities for the Black-Scholes, Gamma and Weibull Option-Pricing Models. Available at SSRN: https://ssrn.com/abstract=556269

Robert Savickas (Contact Author)

George Washington University - School of Business - Department of Finance ( email )

Funger Hall, Suite 501R
2201 G Street, N.W.
Washington, DC 20052
United States
202-994-8936 (Phone)
202-994-5014 (Fax)

HOME PAGE: http://savickas.net/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
974
PlumX Metrics