Abstract
We investigate the empirical performance of hedging strategies based on Greeks, such as Delta and Delta-Gamma, for (European-style) crude oil options in a GARCH model environment. Particular attention is paid to studying the impacts of the conditional heteroscedasticity and the conditional non-normality of the GARCH innovations on the option prices and the performance of these hedging strategies. To examine the empirical performance of the hedging strategies, we evaluate the Value at Risk (VaR) and the Expected Shortfall (ES) of the terminal values of the hedging portfolios using the NYMEX (WTI) data for the 1991 - 2011 period. Our hedging results show that GARCH with shifted gamma innovations systematically outperforms
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