Testing for Jumps: A Delta-Hedging Perspective∗
نویسنده
چکیده
We measure asset price jumps by the hedging error they induce on a delta-hedged position of European options. Based on high frequency data, we propose a nonparametric estimator for this measure and a test for its positivity. We further construct a Kolmogorov-type test for the presence of jump hedging errors for a possibly infinite-dimensional family of options based on the worst-case contract in this family. Under regularity conditions, these tests are equivalent to tests for jumps. An empirical application on U.S. stocks in 2008 shows that jumps cause statistically significant and economically sizable hedging errors for short-dated call and put options. JEL classification: C22
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