In this paper, Amundi intends to gain an understanding of the drivers of stock convexity, by looking into stock fundamentals, with particular interest in the metrics related to value (captured by the price-to-book ratio) and historical volatility. Building on this result, Amundi investigates the ties between the gamma…

Stocks with high net gamma exposure robustly underperform stocks with low high net gamma exposure by 10% per year. This effect is distinct from multiple previously documented return predictors, and survives many robustness checks. We show that stocks with low net gamma exposure negatively predicts future realized volatility…

Short-term, especially same-day expiry (0DTE), options trading has recently surged, raising concerns about its destabilizing impact on the underlying market. Given the inverse relationship between time to expiration and delta-hedging intensity captured by gamma, sizeable open interest in 0DTEs can propagate volatility…

Machine learning is a tool being used for developing trading hedging strategies. This study investigates the use of deep reinforcement learning algorithms to hedge convexity and volatility (gamma and vega) in a system that includes transaction costs. It examines the optimal hedge strategy under three different objective…

Equity convexity means that a stock outperforms in times of large upward or downward movements of the broad market: its elasticity to the market return is curved upward. Gamma is a measure of that convexity. All else equal, positive gamma is attractive, as a stock would outperform in market rallies and diversify in market…

Leveraged ETFs and market makers who are active in option markets must adjust imbalances arising from market movements. Establishing delta-neutrality may cause either return momentum or reversal depending on the sign and size of the imbalance vis-a-vis market prevailing liquidity. The authors find that a large and negative (…

Most trading in cryptocurrency options is on inverse products, so called because the contract size is denominated in U.S. dollars and they are margined and settled in crypto, typically bitcoin or ether. The authors derive new analytic pricing and hedging formulae for inverse options under the assumption that the underlying…