Greeks‐Neutral Option Excess Returns
Year: 2025
Type: article
Abstract: ABSTRACT This study investigates the linkage between ex‐ante expected greeks‐neutral excess return () and ex‐post realized greeks‐neutral excess return (). Employing the top‐down framework, we show that is determined by the difference between the market‐derived implied volatility and the estimated implied volatility absent arbitrage opportunities. Serving as the optimal predictor of , we first find that positively predicts . Second, the bottom‐up complements the top‐down , enhancing the prediction of . Third, the 10‐1 portfolios formed on realize positive excess returns and sizeable Sharpe ratios in the future. The IPCA that employs information from different measures and terms generates superior performance.
Source: Journal of Futures Markets
DOI: 10.1002/fut.22598
Authors: Yaofei Xu, Yi Hong, Pei Jose Liu, Zhendong Zhang
Institutions: Xi’an Jiaotong-Liverpool University, Newcastle University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4410754802