Skewness and Kurtosis Adjusted Black-Scholes Model : A Note on Hedging Performance

This article investigates the delta hedging performance of the skewness and kurtosis adjusted Black-Scholes model of Corrado and Su (1996) and Brown and Robinson (2002). The empirical tests in the FTSE 100 index option market show that the more sophisticated skewness and kurtosis adjusted model performs worse than the simplistic Black-Scholes model in terms of delta hedging. The hedging errors produced by the skewness and kurtosis adjusted model are consistently larger than the Black-Scholes hedging errors, regardless of the moneyness and maturity of the options and the length of the hedging horizon