Publication details

Gamma-hedging of Warrants: Evidence from Frankfurt Stock Exchange



Year of publication 2017
Type Article in Proceedings
Conference Regional Studies on Economic Growth, Financial Economics and Management, vol. 7
MU Faculty or unit

Faculty of Economics and Administration

Field Management and administrative
Keywords Gamma-hedging; Warrants; Portfolio; Trading; Risk
Description Gamma-hedging is a useful strategy how to reduce risk of a portfolio consisting of financial derivatives and shares. This paper investigates portfolios consisting of European type warrants and shares of world-known companies. Currently traded assets on the Frankfurt Stock Exchange are used to compose portfolios. In theory gamma-neutral portfolios should be immune even to significant changes of underlying assets; price but real markets may not support this fact. We find trading strategy similar to protective collar. Since our strategy is intended for decreasing price of an underlying asset, we test the hypothesis that alternative collar strategy is profitable for decreasing shares and losing for increasing shares. We test it on three kinds of shares – decreasing BMW, increasing Adidas and stagnating Telekom. Our results are that gamma-hedging in our scenario has positive impact on decreasing portfolio’s risk, our trading strategy brings profit and it is verified on real financial markets.
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