delta-hedge option return

[Maarten Nies]

Hello Statalisters,

I have write an thesis about delta-hedge option return en IVOL, but i'm stuck in calculating the delta-hedge option return since I have never worked with STATA before and my supervisor also can't help.

I have to follow an theorical guideline of a paper with one equation as can seen in the image.

I obtain data on U.S. individual stock options from the Ivy DB database provided by OptionMetrics. The data fields we use include daily closing bid and ask quotes, trading volume and open interest of each option, implied volatility, and the option’s delta computed by
OptionMetrics based on standard market conventions. I obtain daily and monthly split-adjusted stock returns, stock prices, and trading volume from the Center for Research in Security Prices (CRSP). For each stock, Further, we obtain the daily and monthly Fama-French factor returns and risk-free rates from Kenneth French’s data library.

date exdate last_date cp_flag strike_price best_bid best_offer volume open_interest impl_volatility delta ticker index_flag dclrdt paydt rcrddt (data from Ivy database)
bidlo askhi prc vol bid ask retx (Center for Research)
MktRF SMB HML RF ( Fama French)

I have no clue how to do this equation and get the delta-hedge option return, could someone help me with this?

Regards

Maarten Nies

[William Lisowski]

Welcome to Statalist, Maarten.

To increase the likelihood that Statalist readers will be able to assist you, please review the Statalist FAQ linked to from the top of the page, as well as from the Advice on Posting link on the page you used to create your post. Note especially sections 9-12 on how to best pose your question. The more you help others understand your problem, the more likely others are to be able to help you solve your problem.

In particular, your problem seems to consist of two large tasks: getting your data into Stata, and then "calculating the delta-hedge option return" (whatever that means. my knowledge of finance is no deeper than my wallet) following the formula you presented. A good starting point for you is to become familiar enough with Stata to create the data called for by the formula. You describe the data you have, but haven't showed us that you've used it to derive the variables that are needed for your formula. At that point, someone may be able to advise on translating the formula into Stata code, or indeed, by then you may be familiar enough with Stata to make significant progress on it without assistance.

To better familiarize yourself with Stata, you might follow the path that many of us here followed. When I began using Stata in a serious way, I started by reading my way through the Getting Started with Stata manual relevant to my setup. Chapter 18 then gives suggested further reading, much of which is in the Stata User's Guide, and I worked my way through much of that reading as well. All of these manuals are included as PDFs in the Stata installation (since version 11) and are accessible from within Stata - for example, through Stata's Help menu. The objective in doing this was not so much to master Stata as to be sure I'd become familiar with a wide variety of important basic techniques, so that when the time came that I needed them, I might recall their existence, if not the full syntax.

You will find that Statalist members are generous with their time for answering focused questions to help questioners overcome obstacles they have tried unsuccessfully to overcome, and who then present the sort of information described in the FAQ. However, broad questions of the sort you've asked are only rarely met with the sort of essay it seems to require.