Determinants of the Index Straddle Returns

Byung Jin Kang

Journal of Derivatives and Quantitative Studies: 선물연구

ISSN: 1229-988X

Open Access. Article publication date: 30 November 2013

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Abstract

This paper investigates ATM zero-beta straddle (i.e., ZBS) returns, one of the most widely used volatility trading strategies, and then examines the determinants of them. First, from a point of theoretical view, we find that the determinants of the ZBS returns without rebalancing are different from those with rebalancing. This means that most previous studies overlooking the return characteristics by difference of rebalancing frequency could result in misleading implications. Next, from a point of empirical view, we find that the negative excess returns are also obtained by taking a long position in ZBS on the KOSPI 200 index options, as in most other markets. Even though these negative excess returns are not strongly significant, but they are found to be closely related to the volatility risk premium.

Keywords

Citation

Kang, B.J. (2013), "Determinants of the Index Straddle Returns", Journal of Derivatives and Quantitative Studies: 선물연구, Vol. 21 No. 4, pp. 411-434. https://doi.org/10.1108/JDQS-04-2013-B0003

Publisher

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Emerald Publishing Limited

Copyright © 2013 Emerald Publishing Limited

License

This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode


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