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An analysis of Delta variant hedging impact on intraday asset price dynamics 

Seminar by Dori Levanoni

14th September 2021 – On-Line

In this seminar Dori Levanoni will discuss the impact of listed options market makers on the dynamics of intraday asset prices.
Most financial market participants have objectives which are difficult to determine so their trading behaviour can be quite difficult to model. Listed options market makers, however, have very clear and nearly singular objectives prescribed by both their internal risk controls and regulatory requirements. This means we may be able to model their trading behaviour and so their impact on market prices fairly well.

Two recent papers – references are below – study their behaviour and their impact on the dynamics of intraday asset prices as a result of their delta hedging. However, the methods used to estimate the dealers’ gamma positions (which determine their delta hedging needs) are much stronger for individual security options than they are for index options.

This seminar will analyse those proxies for index option dealer gamma positions and compare / contrast them with much finer estimates to see if their ability to predict those dynamics stands up.

Barbon, Andrea and Buraschi, Andrea, Gamma Fragility (November 5, 2020). University of St.Gallen, School of Finance Research Paper No. 2020/05, Available at SSRN: https://ssrn.com/abstract=3725454 or http://dx.doi.org/10.2139/ssrn.3725454

Baltussen, Guido et al. Hedging demand and market intraday momentum, Journal of Financial Economics Available online 4 May 2021

 

Dori Levanoni

Partner and Chief Investment Strategist – First Quadrant

Dori Levanoni is a senior member of First Quadrant’s Investments team. In his more than two decades with First Quadrant, Dori has been involved in nearly every aspect of the firm’s investment process, contributing to research, risk measurement, risk allocation, portfolio optimization, trading, and portfolio management.
Dori has played an integral role as portfolio manager for a number of strategies across the firm’s global macro and global equity platforms, and has also contributed his insights to various research projects, journals, publications and speaking engagements.
Dori began his career at First Quadrant in 1991, spending a brief period in the mid-1990s researching in the Department of Anatomy and Neurobiology at Washington University in St . Louis, before returning to the firm for the remainder of his tenure.