Because of the adaptive nature of position sizing, trend-following strategies can generate the positive skewness of their returns, when infrequent large gains compensate overall for frequent small losses. Further, trend-followers can produce the positive convexity of their returns with respect...

We consider the delta-hedging strategy for a vanilla option under the discrete hedging and transaction costs, assuming that an option is delta-hedged using the Black-Scholes-Merton model with the log-normal volatility implied by the market price of the option. We analyze the expected...