Options can be dynamically replicated using model-free Greeks extracted from the volatility smile. However, smile-implied delta and delta–gamma hedging do not achieve minimum variance in the presence of price–volatility correlation, and these strategies have shown poor performance relative to the Black–Scholes (BS) benchmark. We propose a way to extend smile-implied option replication with volatility risk management. Large-scale evidence on S&P 500 index options indicates that smile-implied delta–gamma–vega hedging strategies outperform the BS approach as well as more sophisticated option hedging frameworks, including stochastic volatility and jumps.

中文翻译：

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带有波动风险的微笑暗示对冲

可以使用从波动率微笑中提取的无模型希腊语动态复制期权。然而，微笑隐含的 delta 和 delta-gamma 套期保值在存在价格-波动率相关性的情况下并没有达到最小方差，并且这些策略相对于 Black-Scholes (BS) 基准表现不佳。我们提出了一种通过波动率风险管理来扩展微笑隐含期权复制的方法。标准普尔 500 指数期权的大规模证据表明，微笑隐含的 delta-gamma-vega 对冲策略优于 BS 方法以及更复杂的期权对冲框架，包括随机波动率和跳跃。